Worldwide debt cap
The worldwide debt cap rules were introduced in 2009 to limit UK corporation tax deductions for interest costs of large groups to no more than the finance cost borne by the worldwide group as a whole. The Pre-Budget Report 2009 proposed several changes to address anomalies in the debt cap rules and further amendments were announced in the March Budget 2010. Today's publication repeats these previous announcements.
Who will be affected?
Each of these changes addresses specific issues raised by particular industry groups and are unlikely to affect the majority of large corporate groups affected by the debt cap rules.
The changes announced at the Pre-Budget Report 2009, together with the further amendments announced today, will be introduced in a Finance Bill as soon as possible after the summer recess and will have effect (other than the change to the gateway test) from 1 January 2010. It is proposed that the change to the gateway test will be elective and will only apply prospectively.
These changes reflect the ongoing discussions between HMRC and representative bodies to address the various problem areas and mismatches that have been identified under the debt cap rules. As such, the proposals are welcome but highlight the complexities of the debt cap provisions. It is disappointing that there are still a number of areas which HMRC have not yet addressed and will now likely require retrospective legislation.