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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Debt cap: failure to make statements of allocation: default treatment of exemption of financing income amounts: example

Group R - financing income and unrestricted reductions example

In the group scenario in CFM91820 above, two companies had finance income amounts. Company U had finance income of £950,000 and Company V had finance income of £800,000.

The total disallowed amount for Group R was £650,000. The tested income amount is the sum of the net financing income of each UK group company. In this example, Companies U and V only have financing income, but if they had financing expenses then they would be netted against the financing income to calculate the net financing income. The tested income amount for Companies U and V is £1,750,000.

The lower of the total disallowed amount and tested income amount is £650,000.

The total of unrestricted reductions is £1,750,000 (£950,000 for Company U and £800,000 for Company V).

As the total of the unrestricted reductions exceeds the total disallowed amount then we need to apply the formula UR/TUR x X to reduce the unrestricted reduction for each company. X is £1,100,000 (the excess of the total of the unrestricted reductions over the lesser of the total disallowed amount or tested income amount).

For Company U the unrestricted reduction will be reduced by:

950,000/1,750,000 x 1,100,000 = £597,143

For Company V the unrestricted reduction will be reduced by:

800,000/1,750,000 x 1,100,000 = £502,857

As a consequence of this computation Company A will be charged on financing income of £597,143 and Company V on financing income of £502,857.