Introduction Details of the Schedule Part 3 – Disallowance of Deductions
35.Part 3 applies if the ‘tested expense amount’ exceeds ‘the available amount’. In broad terms, the ‘tested expense amount’ is the aggregate of the net amount of financing expense payable by each of the relevant group companies that have net financing expense, while the available amount is the external gross finance expense of the worldwide group of companies. In calculating the ‘tested expense amount’, net amounts falling below a de minimis limit are excluded.
36.The excess is the amount of financing expense that must be disallowed in computing the corporation tax profits of the relevant group companies. Part 3 sets out how the group should notify HM Revenue & Customs (HMRC) of the allocation of the disallowance between the relevant group companies by submitting an allocation statement, and provides for an alternative procedure if the group fails to do so.
37.Paragraph 15 applies this Part of the Schedule if for any period of account (‘the relevant period of account’) of the ‘worldwide group’, the ‘tested expense amount’ exceeds the ‘available amount’. The ‘tested expense amount’ is defined in Part 8 and the ‘available amount’ in Part 9. Under sub-paragraph (2), the excess is called the ‘total disallowed amount’.
38.Paragraph 16 provides that Part 3 applies to a company that is a relevant group company at any time during the relevant period of account of the group.
39.Paragraph 17 provides that the companies to which Part 3 applies may appoint one of them to act on their behalf for the relevant period of account in respect of matters governed by Part 3. The appointment must be made by all the relevant group companies together, but once made does not have to be renewed for each subsequent period of account.
40.Sub-paragraph (3) provides a regulation-making power to allow the Commissioners for HM Revenue & Customs to introduce rules governing an appointment within this paragraph, and mentions matters that may be covered in particular in regulations.
41.Paragraph 18 defines the term ‘the reporting body’ for the purposes of Part 3 as the company appointed under paragraph 17 for the relevant period of account, or the companies to which Part 3 applies (acting jointly) if no such appointment has effect.
42.Paragraph 19 requires the reporting body to send a ‘statement of allocated disallowances’ for the relevant period of account to HMRC. Sub-paragraph (2) requires the statement to be received by HMRC within 12 months of the end of the period of account, and, by virtue of sub-paragraph (3), it must comply with the requirements of paragraph 21.
43.Paragraph 20 allows the reporting body to submit a revised statement to HMRC, with subsequent revisions also being allowed. Any revised statement must be received by HMRC within 36 months of the end of the period of account. It must also comply with the requirements of paragraph 21 and must indicate where it differs from the previous statement. The revised statement supersedes the previous statement.
44.Paragraph 21 sets out the requirements of a statement of allocated disallowances. Sub-paragraph (3) provides for the statement to show the ‘tested expense amount’, ‘available amount’ and ‘total disallowed amount’. Under sub-paragraph (4) the statement must list the companies that are allocated a disallowance, and identify the particular financing expense amount(s) that are to be disallowed for each such company, as defined by sub-paragraph (5). Sub-paragraph (6) requires that the total of the amounts specified must equal the total disallowed amount.
45.Paragraph 22 gives the effect of the statement of allocated disallowances. It is that a financing expense amount of a company specified in a statement is not to be brought into account by the company for corporation tax purposes.
46.Paragraph 23 provides that where a company has delivered a company tax return for the relevant period, and as a result of a revised statement either the amount of profits on which corporation tax is chargeable for a relevant accounting period of a company changes, or any other information contained in the return is rendered incorrect, then the company is treated as having amended its return for the accounting period so as to reflect the change or correct the information.
47.Paragraph 24 provides a regulation-making power to allow the Commissioners to introduce rules governing a statement of allocated disallowances, and mentions matters that may be covered in particular.
48.Paragraph 25 sets out the consequences of a failure by a reporting body to submit a statement of allocated disallowances that complies with the requirements of paragraph 21. Sub-paragraph (2) explains that company to which Part 3 applies that has a net financing deduction must reduce the deductions brought into account in respect of financing expense amounts. The term net financing deduction is defined in paragraph 70(2).
49.Sub-paragraph (3) provides, by way of a formula, that a company’s share of the total disallowed amount (the reduction) is in the same proportion as its net financing deduction bears to the tested expense amount.
50.Sub-paragraph (4) provides that the particular financing expense amounts that must be reduced, and the amounts of the reductions, must be determined in accordance with regulations. Sub-paragraph (5) lists the areas that the regulations may cover, but is not exhaustive.
51.Paragraph 26 provides a regulation-making power to allow the Commissioners to introduce rules to ensure that a company in relation to which a financing expense amount is reduced under paragraph 25 has sufficient information to determine its amount of disallowance and describes matters that may be covered in particular.