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HMRC internal manual

Senior Accounting Officer Guidance

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HM Revenue & Customs
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What is a qualifying company: conditions for a qualifying company: balance sheet total - examples of aggregating assets

Companies in group have the same financial year end

The example below shows a group of four companies. To work out whether they are qualifying companies for Senior Accounting Officer (SAO) purposes by reference to the balance sheet totals test, see SAOG11260 and SAOG11270, it is necessary to look at the assets of the UK-incorporated companies that are to be counted.

These are the figures for financial year to 31 December 2017.

COMPANY A (PARENT) - UK INCORPORATED

Total balance sheet assets Including investment in subsidiary’s shares
£800m £700m

COMPANY B - UK INCORPORATED (100% subsidiary of Company A)

  Total balance sheet assets Including investments in subsidiary’s shares/loans
  £1200m  
investment in subsidiary C’s shares   £520m
investment in subsidiary D’s shares   £600m
loan to subsidiary C   £30m

COMPANY C - UK INCORPORATED (100% subsidiary of Company B)

Balance sheet assets Including investment in subsidiary’s shares
£700m £0

COMPANY D - 100% subsidiary of Company B

Balance sheet assets Including investment in subsidiary’s shares
£1100m £0

The tables below shows how the assets to aggregate are calculated including how the investment in a non-UK incorporated company will be treated.

IF COMPANY D IS UK INCORPORATED

Company Total assets Less investment in UK subsidiaries Assets to aggregate
Company A £800m £700m £100m
Company B £1200m £1120m £80m
Company C £700m £0 £700m
Company D £1100m £0 £1100m
Balance sheet total £3800m   £1980m

IF COMPANY D IS NOT UK INCORPORATED

Company Total assets Less investment in UK subsidiaries Assets to aggregate
Company A £800m £700m £100m
Company B £1200m £520m £680m
Company C £700m £0 £700m
Company D N/A N/A N/A
Balance sheet total £2700m   £1480m

This example shows that when calculating the balance sheet total of a UK incorporated company you

Ignore any liabilities

Then, look only at the balance sheet assets and

Exclude the value on its balance sheet of its investment in the shares of its immediate subsidiaries, but

include

  • its interests such as loans to other group companies (because these are not treated as investments in those companies for SAO purposes), and
  • its investments in non-UK incorporated companies as assets because the actual assets of non-resident companies are not themselves aggregated.

Although in both scenarios in the table above the total assets exceed the qualifying level (more than £2bn) the assets after excluding investments in UK subsidiaries do not. So for the financial year to 31 December 2018 the companies in this group are not qualifying companies as a result of the balance sheet test.

NOTE: that the example above shows that the valuation of shares in a subsidiary is based on the subsidiary’s net asset value. However the investment in a subsidiary’s shares may be shown at cost or on some other basis. It is the valuation of those shares in the parent company’s balance sheet that is excluded from the parent company’s assets.

However, the responsible officers must also carry out the turnover test, see SAOG11240, to check whether the aggregated turnover of the UK incorporated companies within the group exceeds £200m for the year to 31 December 2017. If it does these companies will be qualifying companies for the financial year to 31 December 2018.

Companies in group have different financial year ends

Where the financial year ends of the companies differ, the aggregation necessarily involves different financial years. In that case it is necessary to consider each UK incorporated group company separately and decide which financial years of the other companies are to be taken into account, see SAOG11290. But once that is done, the rules of asset calculation and aggregation apply in the same way as in the example above.