HMRC internal manual

Corporate Finance Manual

CFM92690 - Debt cap: anti-avoidance rules: main rules: scope for avoidance

You should check the other guidance available on GOV.UK from HMRC as Brexit updates to those pages are being prioritised before manuals.

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

The structure and nature of the main debt cap rules means there is significant scope for avoidance

The debt cap rules involve a comparison of the net financing expenses of a group’s relevant group companies with the gross financing expense of the group as a whole. There is then the opportunity to reduce the financing income of the UK group companies to the extent those companies have net financing income.

So there is scope to manipulate:

  • The tested expense amount
  • The available amount
  • The tested income amount.

Each of these amounts is derived from a number of group companies, rather than just one company. In the case of the available amount, manipulation of the figure could involve non-UK group companies. In the case of the tested expense amount, a scheme involving just one relevant group company could have an impact on all the relevant group companies with net financing expense.

In considering potential avoidance, HMRC staff must bear in mind that the particular company you are considering may not be a party to the transactions that make up an avoidance scheme, but it may benefit from that scheme. You should consider avoidance opportunities from a group perspective, rather than just looking at individual companies.