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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Debt cap: particular types of company: group treasury companies: periods of account beginning before11 December 2012

Conditions for being a group treasury company

In order to be a group treasury company for a particular period of account of the worldwide group, a company must meet three conditions. These are at TIOPA10/PT7/S16(6)-(8).

First, and obviously, it must be a member of the worldwide group. There is no requirement for it to be a member of the group concerned throughout the whole of the relevant period of account.

Second, it must undertake treasury activities for the group. CFM92540 explains what is meant by ‘treasury activities’.

A company is not automatically debarred if it undertakes other income-generating activities. However, the third condition is that at least 90% of the relevant income of the company for the period of account concerned is group treasury revenue - thus a company will only qualify if its income from non-treasury activities is relatively minor.

‘Group treasury revenue’ is revenue that arises from the treasury activities that the company undertakes for the group. But dividends or distributions, whether from subsidiaries or from portfolio holdings, are not group treasury revenue unless they come from a company that is itself both a UK group company and a group treasury company (section 316 (11)).

The company’s ‘relevant income’ is its income arising from its activities as a whole. When quantifying both relevant income and group treasury revenue, the measure is the amount of income given by generally accepted accounting practice (GAAP), before any deduction for expenses (or for anything else).

Unlike the definition of ‘financing income amounts’, this is a pure accounting measure - it is not tied to the tax treatment of the income, nor are exchange gains, or profits from derivatives, excluded. An amount is accounted for as income if it is credited to the company’s income statement or profit and loss account.

Example

A company invests in sterling debt securities, which it accounts for as available for sale assets. In a particular period of account, interest of £1.5 million accrues on the securities and is credited to the income statement. This will form part of the company’s ‘relevant income’, and its ‘group treasury income’. Fair value changes in the securities are initially taken to equity. Any fair value increases taken to equity do not form part of the company’s income. In the same period, however, the company disposes of part of the holding, and fair value losses of £0.25 million are recycled to the income statement.

The company’s income from the debt securities for the relevant period is £1.25 million. If the income is reported in one line in the accounts, the ‘before any deduction for expenses’ requirement does not mean that the company should disaggregate amounts in the accounts and look at credits and debits separately.

If the company concerned is not a member of the worldwide group throughout the period of account, the ‘90% test’ should be applied only to its income arising while it is a member of the group.