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HMRC internal manual

Corporate Finance Manual

Debt cap: particular types of company: introduction

Special cases within the debt cap rules

In addition to the basic definitions of financing expense amounts and financing income amounts, TIOPA10/PT7 contains a number of exceptions and exemptions - situations in which expenses or income are not financing expense amounts and financing income amounts for debt cap purposes or particular types of company are excluded from the gateway test or main rules. Exclusions relating to short term debt are covered at CFM92000, and those relating to stranded reliefs at CFM92200. This chapter deals with exclusions relating to particular types of company.

There are a number of provisions in the debt cap rules where a dormant company is excluded from an obligation - see CFM92515 which includes the definition of a dormant company.

Many large groups will have one or more group treasury companies. The business of a treasury company is similar to that of a bank. The cash management function for a group may be centralised within a group treasury company, which pulls in surplus cash from other group companies and invests it on either a short-term or a long-term basis. It may make loans to other group companies, and may manage financial risks on behalf of the group, being party to derivative contracts both with other group companies and with external parties.

The business model of a bank - which, in very broad terms, makes money by receiving more interest than it pays out - does not fit easily within the debt cap framework; hence the exclusion for financial services groups. Much the same applies to group treasury companies. Thus TIOPA10/PT7/S326 allows a group treasury company to elect that its interest and similar payments are not financing expense amounts, nor its interest and similar receipts financing income amounts. Guidance on the group treasury company exemption is at CFM92520 - 40.

Chapter 7 of Part 7 also contains specific exemptions for:

  • real estate investment trusts (CFM92550)
  • companies carrying on oil extraction activities (CFM92560), and
  • industrial and provident societies (CFM92565).

Finally, asymmetry may arise if a subsidiary company pays interest to a parent entity that is not within the charge to corporation tax. Without special provision, such interest might be a financing expense of the paying company, but could never give rise to equivalent financing income. For this reason, particular exclusions apply if interest or similar amounts are paid to a charity (CFM92570) or to certain educational or public bodies (CFM92580).