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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: company joining a group is not already a qualifying company: example

Company A has its financial year end on 31 December 2013. In the early part of that year its responsible officers determine that it is not a qualifying company for that financial year. They determine this because it is UK incorporated and because of its preceding year results.

In June 2013 it is taken over by company B. Company B is a qualifying company and is therefore already within the SAO regime. Company A does not become a qualifying company for the year ended 31 December 2013, although it has become part of a group - its UK incorporation and the results of its preceding year stand as before, and at the end of its preceding financial year it was not part of the new group and so could not aggregate its results with those of company B. However, in its financial year ended 31 December 2014 it is a qualifying company as a result of aggregation of its results and those of company B from the financial year ended 31 December 2013.

In the example above the acquiring company is already a qualifying company. However, if the acquiring company was not a qualifying company, the aggregation of their turnover and/or balance sheet assets at the end of the financial year in which the takeover takes place could result in each being a qualifying company for the financial year following that in which the takeover takes place.

Furthermore, if the financial year ends of these companies were not the same, this could result in one company qualifying in its following financial year but the other one not qualifying. For example, Company A takes over Company B on 28 February 2015. Company A has a turnover of £105 million for its financial year ended 31 December 2014 and £135 million for its year ended 31 December 2015. Company B has a turnover of £85 million for its financial year ended 31 March 2015. The consequences are that:

  • For Company A’s financial year to 31 December 2016, its aggregated turnover is £135 million from its financial year to 31 December 2015 plus the £85 million from Company B for its financial year to 31 March 2015. This is a total of £220 million and this means that A is a qualifying company for the year ended 31 December 2016.
  • For Company B’s financial year to 31 March 2016, its aggregated turnover is the £85 million from its financial year ended 31 March 2015 (at which time both companies were in the same group) plus Company A’s turnover of £105 million for its year ended 31 December 2014. This is a total of £190 million and this means that company B is not a qualifying company for the year ended 31 March 2016.

For simplicity this example uses only turnover but in practice balance sheet assets would also need to be considered.