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HMRC internal manual

Corporate Finance Manual

Interest restriction: groups, periods and financial statements: the period of account: election to alter the default period of account

TIOPA10/S486

Where the ultimate parent does not draw up financial statements, the rules in S485 determine the default periods of account in the accounts-free periods. This may result in an arbitrary accounting date which does not coincide with the year-end of any of the UK companies within the group and could represent a large compliance burden.

Groups therefore have the option to override this treatment by electing for a specific period of account to be used instead of the period of account prescribed by the rules.

The election

The election can only apply to default twelve month periods within the accounts-free period. The election works by starting the specified period of account on the same day as the default period of account but then lets the company choose the end day. The end day must fall within the accounts-free period and must be within eighteen months of the start day.

The election must be made by the ultimate parent before the end day and is irrevocable, although there are extended time limits in the first year of the rules.

Subsequent elections

Although once made the election is irrevocable, the election relates to a specific default period of account and the accounts-free period might contain several of these where it spans multiple years. An ultimate parent could therefore make an election for a default period (the earlier elected period) and then make a subsequent election for a later period. If this is the case, the end day for the later elected period must be three years or more after the end day of the earlier elected period.

Example

The accounts-free period of a group runs from 1 April 2017 to 31 August 2019 and s485 prescribes the following default periods of account:

  • 1 April 2017 - 31 March 2018 (12 months)
  • 1 April 2018 - 31 March 2019 (12 months)
  • 1 April 2019 - 31 August 2019 (5 months)

The majority of UK group companies use a period of account which runs from 1 July to 30 June however so the ultimate parent elects this to apply as the period of account. The periods of account in the accounts-free period will now be:

  • 1 April 2017 - 30 June 2018 (15 months)
  • 1 July 2018 - 30 June 2019 (12 months)
  • 1 July 2019 - 31 August 2019 (2 months)

Note the group could also have chosen for the first period of account to run from 1 April 2017 to 30 June 2017 (3 months) followed by an additional period of account from 1 July 2017 to 30 June 2018 (12 months).

Double election

Note that where the ultimate parent of a multi-company group fails to draw up financial statements for the group, but does draw up financial statements for itself, then the period of account for the group will typically follow the period for which those financial statements are prepared.

However, it can still take advantage of the above election (under S486) to specify a period of account by electing (under S484) that the rule to follow the solus financial statements is to be ignored.