The measure

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 the following further amendments were announced today:

• The results of companies falling within the special tax regime for securitisation companies will be excluded from the 'available amount'. This supplements the previously announced change that excludes a securitisation company from the definition of financing costs and income;
• Where a company is involved in capital market transactions and incurs a corporate tax liability as a result of the application of the debt cap, it will be allowed to transfer this to another group member. This recognises the difficulties which could arise where a company involved in a securitisation could otherwise incur an unexpected liability due to disallowance of expense under the debt cap;
• The definition of debt for the gateway test will include long-term arrangements that have the economic effect of a loan, even where these do not have the legal form of a loan. It is expected this will be especially important in the PFI sector;
• It will be made clear that a limited liability partnership cannot be an ultimate parent of a group for debt cap purposes;
• Distributions made by industrial and provident societies will be excluded from the definition of financing expenses of these companies, even though they are typically regarded as interest for tax purposes.
  

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 who fall within the debt cap rules.

When?

The changes announced at the Pre-Budget Report 2009, together with the further amendments announced today, will be introduced into a Finance Bill as soon as possible in the next Parliament 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.