Worldwide debt cap ― the gateway test

By Tolley

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Worldwide debt cap ― the gateway test
  • UK net debt
  • Worldwide gross debt
  • Companies joining and leaving a group
  • Detailed methodology

Repeal of worldwide debt cap

The worldwide debt cap has been repealed from 1 April 2017 ― see the Worldwide debt cap ― main provisions guidance note for further information. This guidance note deals with the legislation in force before 1 April 2017.

A group is excused from performing detailed debt cap calculations by virtue of the so-called ‘gateway test’ where its:

UK Net Debt < 75% x worldwide gross debt

TIOPA 2010, s 261

In other words, a company does not have to apply the debt cap where the gateway test is passed. If the group fails the gateway test and its UK net debt exceeds 75% of its worldwide gross debt, the calculations described in the Worldwide debt cap ― main provisions guidance note must be carried out.

The terms ‘UK net debt’ and ‘worldwide gross debt’ are closely defined in TIOPA 2010, ss 262 and 264 respectively. Further details are set out below.

UK net debt

In general terms, UK net debt is the average of the opening and closing net debt of each company that was a relevant group company at any time during the period. Any net debt amounts of less than £3m, and the net debt amount of a company that is dormant under CA 2006, s 1169 (subscription sensitive), are treated as nil. See CFM90630 and CFM9068

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