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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Debt cap: anti-avoidance rules: general: schemes in place before commencement date

Application of the anti-avoidance rules where a scheme is entered into before 1 January 2010

The debt cap rules apply to the first accounting period of the group that begins on or after 1 January 2010. To deter groups implementing schemes designed to frustrate the debt cap rules that come into effect just before the first effected accounting period, the anti-avoidance rules are designed to catch existing schemes.

Each of the three sets of anti-avoidance rules within TIOPA10/PT7/CH6 consider the purposes of a party entering into a scheme. In each case this can include a scheme that the party entered into before the debt cap rules apply to the group.

This does not mean that groups have to review all their existing borrowing arrangements to decide if they are affected by the anti-avoidance rules. Borrowing arrangements put in place in say 2008 would be very unlikely to be affected by the anti-avoidance rules. While the anti-avoidance rules could potentially apply to those borrowing arrangements, the main purpose condition will probably not be met. A party is very unlikely to enter a scheme with a main purpose of frustrating the debt cap rules, when at that time the debt cap was merely a concept in a government discussion document.

However a party may have entered a scheme in say October 2009 with a main purpose of frustrating the debt cap rules when those rules apply to the UK members of the group for their accounting periods ended 31 December 2010. At that time groups have a better understanding of how the debt cap rules work and may be planning for their implementation. This does not imply that a scheme entered into before Finance Bill 2009 received Royal Assent cannot have a main purpose of avoiding the debt cap rules. The purpose, or purposes, of a scheme will always be a question of fact.