This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Corporate Finance Manual

Debt cap: failure to make statements of allocation: default treatment of financing income amounts

This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.


Allocation of exemption of financing income amounts

If a reporting body fails to submit a statement of allocated exemptions for the financing income amounts of UK group companies then TIOPA10/PT7/S296 applies. This paragraph operates by working out the ‘headroom’ for disregarding financing income - the aggregate financing income within UK group companies that might potentially be disregarded. If this is less than the maximum exemption falling to be allocated, the financing income amounts of each UK group company are simply reduced to nil. If it is greater than the amount to be allocated, the financing income amounts of each company are again initially reduced to nil, but an amount is then brought back into account for each company.

In more detail, the statutory procedure is as follows.

For each UK group company the unrestricted reduction must be established. The unrestricted reduction is the amount by which the financing income of the company has to be reduced to reach nil. This is effectively the amount of the financing income.

However if the total of the unrestricted reductions for UK group companies exceeds the lower of the

  • total disallowed amount and
  • the tested income amount,

the unrestricted reduction for each UK group company is reduced by using the formula given by TIOPA10/PT7/S296:

___UR\____            , where

TUR   x   ‘X’

UR  is the unrestricted reduction for the company

TUR  is the total of the unrestricted reductions for the UK group companies

‘X ’ is the excess of the total of the unrestricted reductions over the lesser of the total disallowed amount or tested income amount.

This adjustment brings part of the financing income back into charge for corporation tax purposes.

For an example see CFM91880.

There is no equivalent for allocated exemptions in the Financing Costs and Income Regulations to regulation 15, which sets out how a reduction should be allocated where a company has more than one sort of financing expense amount (see CFM91850). Where a UK group company has financing income amounts in more than one of the categories of TIOPA10/PT7/S314, it is free to decide how an amount computed under the S296 formula should be split between categories.