UK and International Tax news

Update On Debt Cap Rules

Friday 5th November 2010

HMRC has recently invited comments on draft regulations which adjust the available amount for a mismatch between the accounts amount and tax amount.

The amount of interest and other financing expenses that a group of UK companies, including permanent establishments of non-resident companies that are trading in the UK, may bring into account for the purpose of calculating their profits for corporation tax purposes is calculated by reference to the worldwide group to which the UK companies belong.  The worldwide group may consist solely of UK companies and the UK permanent establishments of non-UK resident companies or it may include non-resident companies which do not have UK permanent establishments.  The available amount for the period of account of the worldwide group is the sum of the amounts disclosed in the financial statements of the group for that period.

The purpose of the draft regulations is to deal with mismatches that arise in two separate circumstances:

(i) Where there is a difference in the amount of a financial liability of a relevant group company disclosed in the accounts of the worldwide group and the amount of profit or loss brought into account for the purposes CTA09 and loan relationships.  In such circumstances the available amount can be adjusted to eliminate the mismatch.

(ii) Where a late interest debit is treated under s.373 CTA09 as not accruing until it is paid. The regulations allow the late interest to be subtracted from the available amount.  There are already provisions within the debt cap rules that deal with late interest accruing prior to the introduction of the debt cap rules [see the transitional provisions in para 9 Sch9 FA09].  The question is whether a similar rule would be suitable for interest subject to s.373 CTA09 after the introduction of debt cap.

An adjustment to the available amount will also potentially affect the amount of financing income exempted from the debt cap rules; it is not proposed that any consequential adjustments be made to the exemption of financing income.

HMRC invite comments on the draft regulations overall and, in particular, on the provisions dealing with late interest after the introduction of debt cap, by 22 November 2010.

If you would like more information on the above, please contact Keith Rushen on +44 (0)20 7486 2378.

Contact Us