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HMRC internal manual

International Manual

International movements of capital: Exclusions: cash pooling arrangements

FA09/SCH 17/Para 9 and Regulation 5(1)(a) of S.I. 2009 / No. 2192

Regulation 5(1)(a) excludes certain transactions from the reporting requirement in addition to those specified in FA09/SCH 17/Para 9(1)(a) to (d). It applies to transactions pursuant to cash pooling arrangements where the conditions in Regulation 5(2) have been met.

Regulation 5(2) provides that, before the transaction takes place, the parties to the cash pooling arrangements must notify an officer of HM Revenue and Customs in writing of the terms of the arrangements and written notice must have been given to the parties by an officer of HM Revenue and Customs that transactions entered into pursuant to the arrangements after the date of the notice will be excluded transactions for the purposes of the Schedule.

The purpose of this exclusion is to remove from the reporting requirement large transactions carried out under group cash pooling arrangements where those arrangements have been reviewed by HMRC.

Cash Pooling Arrangements

The legislation does not define ‘cash pooling arrangements’. Broadly they are arrangements which enable companies to minimise expenditure in connection with banking facilities. Entities within a group may transfer their surplus cash to a single account overnight and, in return, draw on that account for their cash flow needs. The central account is usually held by a group treasury company.

The detail of such arrangements will vary enormously but in general the result is a frequently changing network of very short term intra-group loans reflecting the needs of operating companies. Where such transactions are not otherwise excluded from the scope of the reporting requirement regulation 5(1)(a) may be of value. Due to the £100 Million limit (see INTM700600) it is not expected that many groups will need to consider this exclusion.

Notifying HMRC

Where a group wishes to take advantage of the exclusion for cash pooling arrangements it should in the first place approach its CCM or the office to which its corporation tax returns are made.

The business should supply sufficient information concerning the terms on which group cash is pooled to enable HMRC to consider the risks attached to excluding the related transactions from the reporting requirement. The process will involve description and discussion of a group’s procedures and it is very likely that the provision internally prepared documentation describing those processes will be of value.

Changes to arrangements

Where changes are made to cash pooling arrangements subsequent transactions will not be excluded from the scope of the reporting requirement. Groups will therefore need to notify HMRC of such changes. However, this should only be necessary where such changes have a material impact on the arrangements.

For example, the variation of an interest rate should not be regarded as a change if the previously notified arrangements provide for a floating rate and the variation reflects an underlying movement in LIBOR. It would be a change to move interest rates from a floating to a fixed basis where such a change was not a provision of the original arrangements.