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HMRC internal manual

Corporate Finance Manual

Interest restriction: group-interest: QNGIE: results dependent securities

TIOPA10/S414(3)(b), S415(4)-(6),(8)

In determining the amount of interest and other financing costs that qualify to be included in qualifying net group-interest expense certain amounts are excluded. In particular, amounts are excluded where they related to securities issued by an entity where the payments made under the instrument depend on the results of the entity’s business or the business of any other entity in the group.

Note that a purposive approach should be adopted in applying the legislation in line with the distribution rules.  It is aimed at what are really equity risk returns dressed up as interest and should not be applied blindly. 

However, this exclusion does not apply to:

  • Securities where the payments are inversely correlated to the performance of an entity’s business.
  • Securities in respect of an alternative financing arrangement.
  • Regulatory capital securities issued by banks and insurers under the Regulatory Capital Securities Regulations 2013 (S.I. 2013/3209).
  • Securities issued by securitisation vehicles under the permanent regime (under S.I. 2006/3296) or insurance securitisation companies (under S.I. 2007/3402).

There is no general exclusion for amounts paid to another company within the charge to Corporation Tax (unlike the distribution rules).