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HMRC internal manual

Corporate Finance Manual

Debt Cap: the available Amount: the mismatch regulations

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

The Mismatch Regulations Background

There are a number of circumstances where for a particular external liability, the amount that is brought into account in the available amount is different from the amount brought into account as a financing expense amount of the company. This may lead to over or understatement of the tested expense amount.

In general these mismatches arise because the available amount is based directly on the financing costs disclosed in the consolidated accounts of the worldwide group but a financing expense amount is based on the amounts that are deducted for tax purposes by the relevant group company. In these Regulations all references to International Accounting Standards (IAS) should be taken to include accounting standards that use the same treatment as IAS so that UK GAAP is included.

The Tax Treatment of Financing Costs and Income (Correction of Mismatches) Regulations 2010 (SI 2010/3025) (‘The Mismatch Regulations’) deal with this by adjusting the available amount for;

  • Fair value adjustments that are taxed as loan relationships (regulations 3 and 4) (CFM92478)
  • Late interest treated as not accruing until paid (regulations 5 to 8) (CFM92483)
  • Postponed debits on deeply discounted securities issued to connected parties (regulations 9 to 12) (CFM92485)
  • Loan relationships with embedded derivatives (regulations 13 to 14) (CFM92488)
  • Differences arising as a result of debt restructuring (regulations 15 to 16) (CFM92490)
  • Employer asset-backed pension contributions (regulations 16A to 16B)

To ease the compliance burden the worldwide group can make an irrevocable election under regulation 17 that one or more of the regulations will not apply.