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HMRC internal manual

Corporate Finance Manual

Debt cap: anti-avoidance rules: main rules: effect of anti-avoidance rules applying

Where conditions A to C are met the debt cap rules are applied to the most likely alternative scenario

Where all of the three conditions A to C within TIOPA10/S307 are met, then the

  • tested expense amount;
  • tested income amount; and
  • available amount

for the period of account must all be calculated in accordance with TIOPA10/S309.

The scheme may be designed so that these amounts are increased (or in the case of the tested expense amount decreased) for a number of years. For example, a group prepares its accounts each year to 31 December. In 2011 several members of the group enter into a scheme to increase the available amount by £100 million each year for 2011 until 2016. The main purpose of the companies of entering into the scheme is to increase the available amount. The scheme is not an excluded scheme. In each of the years ended 31 December 2011 to 2016 the three Conditions A to C are met and so in each of those years the available amount is instead to be calculated in accordance with TIOPA10/S309.

Alternatively the scheme may be designed so the available amount is only increased for just one period of account and so the counteraction only applies for that period of account.

TIOPA10/S309 contains the rules to calculate the counterfactual that is needed to either

  • test whether condition B is met; or
  • to take the place of the amounts calculated as a result of the scheme being implemented.

When considering any scheme the counterfactual is going to be the same; the same assumptions are used in either case. TIOPA10/S309 requires the calculation of particular amounts or sums as directed by TIOPA10/S307(3) to be carried out using the following assumptions:

  1. The scheme in question was not entered into, and
  2. Instead, if the effect of the debt cap had not been a factor, anything which is more likely than not to have been done or not done would have been done or not done, as the case may be.

In other words, if the group had not been looking to implement a scheme to avoid any of the rules what would it most likely have done?