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HMRC internal manual

Corporate Finance Manual

Debt cap: failure to make statements of allocation: default allocation of disallowance for company with multiple financing expense amounts

The default allocation of the reductions

Once the reduction has been calculated as described in CFM91820 or CFM91825, either the relevant group company can make an election to specify how the reduction is allocated (see CFM91840) or the default rules in regulation 15 apply.

The default rules specify the order in which the reduction is allocated against the financing expense amounts of the company. The allocation against the financing expense amount continues until all of the reduction is allocated.

The order of allocation is as follows:

  1. Non trade loan relationship debits within condition A of TIOPA10/PT7/S313;
  2. Trading loan relationship debits within condition A of TIOPA10/PT7/S313;
  3. Financing cost implicit in payments under finance leases (condition B of TIOPA10/PT7/S313);
  4. Financing costs on debt factoring (condition C of TIOPA10/PT7/S313).
  5. There is an example at CFM91860.