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HMRC internal manual

Corporate Finance Manual

Debt cap: particular types of company: educational and public bodies

Interest paid to educational and public bodies

Companies that are subsidiaries of certain types of public body may find themselves in a similar position to subsidiaries of charities (see CFM92570).

Government departments and Northern Ireland departments are debarred from being corporate entities by section 340 (4), and therefore cannot be the ultimate parent of a group (see CFM90270). But this does not apply to local authorities and certain other bodies of a public nature: it is possible for them to come within the definition of ‘corporate entity’ in section 340, so that if they have subsidiary companies, the entity and its subsidiaries will constitute a group.

Since such entities are not within the charge to corporation tax, interest paid to them by subsidiaries will not constitute a financing income amount. For this reason, TIOPA10/PT7/S327 provides that an amount is not treated as a financing expense amount of a company where the creditor is any of a prescribed list of bodies.

These are

  • Designated educational establishments, within the meaning of CTA09/S105,
  • Health service bodies, as defined in CTA10/S985 - this includes bodies such as Primary Care Trusts and NHS Trusts,
  • Local authorities, or
  • A relevant public body.

A relevant public body is a body that is not a designated educational establishment, a health service body, a local authority or a government department. It is a body that acts under the remit of a statutory instrument, an Act of the Scottish Parliament, Northern Ireland legislation or a Measure or Act of the National Assembly for Wales. Importantly a relevant public body must act for public purposes and not for its own profit and must not be within the charge to corporation tax.

A regulation-making power allows other similar public bodies to be added to the list through secondary legislation.