Introduction Summary
1.Section 35 and Schedule 15 make provision for the restriction of the tax deduction available for finance expenses of groups of companies. The effect of the new measure is to limit the aggregate UK tax deduction for the UK members of a group of companies that have net finance expenses to the consolidated gross finance expense of that group. The Schedule applies to a group that has either a UK or foreign parent. Finance expenses and finance income are payments of interest and interest like amounts.
2.Any restriction is calculated by comparing the UK measure of net finance expenses, calculated by reference to the UK group members that have net finance expenses, with the worldwide measure of the group’s consolidated finance expense. Any restriction is then allocated to one or more of the UK group companies, leading to a disallowance of part or all of their finance expenses. To the extent that other UK members of the group have net finance income, the finance income of the UK group companies can be reduced in computing their corporation tax profits, but only to the limit of the restriction of finance expenses. The measure has effect for accounting periods beginning on or after 1 January 2010.
3.The changes introduced by this section are part of the package of measures being introduced as a result of the Government’s review of the taxation of foreign profits.