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HMRC internal manual

Corporate Finance Manual

Debt cap: anti-avoidance rules:schemes preventing the debt cap applying to a large group

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

What happens when the conditions apply? {#}

Section 305A

TIOPA10/S305A, which applies to periods of account ending on or after 17 July 2012, counters schemes that are designed to prevent the debt cap applying to a large group by ensuring that none of the UK subsidiaries of the parent of the accounting group (which would be the ultimate parent of a debt cap group but for the scheme) are relevant subsidiaries. This might be achieved, for instance by artificial dilution of ownership to below 75%.

When the conditions of section 305A are met by the group, the effect of the scheme is ignored so that the companies that would not have been relevant group companies because of the scheme become relevant group companies.

The two conditions are:

  • Condition A is that at or before the end of the period of account a scheme is entered into; and the main purpose, or one of the main purposes, of any party to the scheme is that the group does not have any relevant group companies for the period of account.
  • Condition B is that the scheme is not an excluded scheme.

Excluded scheme

The conditions for S305A to apply are not satisfied if the arrangements are an excluded scheme. Regulation 2 of SI 2013/2892 provides that there is an excluded scheme where the ‘relevant event’ that causes the lack of relevant group companies is a business combination which is a relevant event for the purposes of TIOPA10/S348A (see [###### This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

What happens when the conditions apply? {#}

Section 305A

TIOPA10/S305A, which applies to periods of account ending on or after 17 July 2012, counters schemes that are designed to prevent the debt cap applying to a large group by ensuring that none of the UK subsidiaries of the parent of the accounting group (which would be the ultimate parent of a debt cap group but for the scheme) are relevant subsidiaries. This might be achieved, for instance by artificial dilution of ownership to below 75%.

When the conditions of section 305A are met by the group, the effect of the scheme is ignored so that the companies that would not have been relevant group companies because of the scheme become relevant group companies.

The two conditions are:

  • Condition A is that at or before the end of the period of account a scheme is entered into; and the main purpose, or one of the main purposes, of any party to the scheme is that the group does not have any relevant group companies for the period of account.
  • Condition B is that the scheme is not an excluded scheme.

Excluded scheme

The conditions for S305A to apply are not satisfied if the arrangements are an excluded scheme. Regulation 2 of SI 2013/2892 provides that there is an excluded scheme where the ‘relevant event’ that causes the lack of relevant group companies is a business combination which is a relevant event for the purposes of TIOPA10/S348A (see](https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm90480) A notifiable arrangement under DOTAS cannot be an excluded scheme – regulation 12.