CFM95930 - Interest restriction: group-interest: relevant income and expense amounts

TIOPA10/S411

The calculation of net group-interest expense is based on the amounts of relevant expense amounts and relevant income amounts recognised in the group’s financial statements.

The definitions of relevant expense and income amounts are aligned with the definition of tax-interest, taking account of tax rules which treat certain arrangements as being loan relationships. The amounts included in the definitions are:

  • Profits and losses, including interest and ancillary expenses, arising from loan relationships including from related transactions. This aligns with the scope of the loan relationship rules at CTA2009/S306A and includes items such as discounts and premia on loan relationships.
  • Dividends payable or receivable in respect of preference shares accounted for as a financial liability or asset.
  • Profits and losses, including ancillary expenses, arising from relevant derivative contracts including from a related transaction. However, amounts in respect of non-finance related derivatives are excluded.
  • Financing income and financing charges implicit in payments made under a finance lease.
  • Financing income and financing charges relating to debt factoring or any similar transaction.
  • Financing income and financing charges implicit in payments made under a service concession arrangement that this is accounted for as a liability.
  • Debits and credits in respect of a relevant non-lending relationship, other than exchange or impairment amounts.
  • Alternative finance return under alternative finance arrangements.
  • Manufactured interest income and expense.
  • Financing income and financing charges under a repo or quasi-repo arrangement.
  • Financing income and financing charges under a structured finance arrangement, or which would be if the company in question were within the charge to corporation tax.

Ancillary expenses

Ancillary expenses are defined as expenses incurred directly:

  • in bringing, or attempting to bring, the loan or derivative into existence,
  • in entering, or attempting to enter into, the related transaction,
  • in making payments under the loan or derivative, or as a result of a related transaction, or
  • in taking steps to ensure receipt of payments under the loan or derivative, or in accordance with a related transaction.

Exchange gains and losses

Exchange gains and losses in respect of loan relationships and relevant derivative contracts are specifically excluded from being amounts of relevant expense amounts and relevant income amounts. Amounts of exchange gains and losses would not be included in the other categories.

Impairment losses and reversals

Impairment losses in respect of loan relationships and relevant derivative contracts are specifically excluded from being amounts of relevant expense amounts and relevant income amounts. Likewise amounts representing the reversal of impairment losses are also excluded.

Amounts of impairment losses, and their reversals, would not be included in the other categories.