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HMRC internal manual

Corporate Finance Manual

Debt Cap: the available amount: DDS mismatches

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

The Mismatch Regulations - Deeply Discounted Securities

In cases where a company issues securities at a discount, or repayable at a premium, to a connected company and the creditor does not bring into account credits for the discount the loan relationship rules provide that any debits accrued in relation to the discount are not brought into account until the security is redeemed. See CFM37200.

For debt cap the tested expense amount is partly calculated by reference to the loan relationship debits in a UK company’s accounts, so where the loan relationship debits are brought into account on redemption of the security a mismatch arises between the available amount and the tested expense amount.

Regulations 9 to 12 deal with this by adding the loan relationship debits arising on the redemption of the security to the available amount to the extent that these are not already included within the available amount.