Commentary

D1.1483 Debt cap provisions—tested expense amount

Corporate tax
Corporate tax | Commentary

D1.1483 Debt cap provisions—tested expense amount

Corporate tax | Commentary

D1.1483 Debt cap provisions—tested expense amount

The debt cap provisions were repealed from 1 April 2017 and replaced by the corporate interest restriction regime (CIR). The CIR places a limit on the amount of interest expenses and certain other financing costs that large businesses can deduct when calculating the profits subject to corporation tax. See D1.1401–D1.1470.

The tested expense amount (TEA) for a period of account is the total of each relevant group company's 'net financing deductions' (NFDs).

Net financing deductions

To calculate the NFD of a relevant group company it is necessary to add up its total (intra-group and external) financing expense amounts and deduct its total financing income amounts. The NFDs of each relevant group company are then aggregated to calculate the TEA1.

If a company's total financing income amounts exceed its total financing expense amounts, its NFD is zero, not a minus figure2. If the NFD of a company is less than £500,000, it is treated as nil3, unless an election is made by the worldwide group for this de minimis rule not to apply4. An election5 out of the de minimis rule can be made for periods of account ending on or after 17 July 20126. It is made by the reporting body of the worldwide group and applies to both net financing deductions and net financing income. The election requires the reporting body to provide certain information when making the election such as the first period of account to which it applies, details of the UK group companies

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