Introduction Details of the Schedule Part 4 – Exemption of financing income
52.Part 4 applies where there has been a disallowance under Part 3. The effect of Part 4 is to allow for an amount of financing income received by one or more UK members of a worldwide group to be exempted from corporation tax. The total amount of financing income that can be disregarded in this way is limited by reference to the ‘total disallowed amount’ (see paragraph 15), and by the aggregate amount of net financing income of the UK group companies, which is referred to as the ‘tested income amount’ and is defined in Part 8 as the sum of the net financing incomes of each UK group company.
53.Part 4 sets out how the group should notify HMRC of the allocation of the exemption between the group companies by submitting an allocation statement, and provides for an alternative procedure if the group fails to do so.
54.Paragraph 27 applies this Part of the Schedule to deal with the exemption of financing income for a period of account of the worldwide group where the tested expense amount exceeds the available amount. That is, in the same circumstances in which a disallowance arises under Part 3. Sub-paragraph (2) calls the excess the ‘total disallowed amount’.
55.Paragraph 28 provides that Part 4 applies to a company that is a UK group company at any time during the period of account of the worldwide group. A ‘UK group company’ to which Part 4 applies is defined in paragraph 86 and is a wider class of companies within the worldwide group than ‘relevant group companies’ to which Part 3 applies.
56.Paragraph 29 provides that the companies to which Part 4 applies may appoint one of them to act on their behalf for the relevant period of account in respect of matters governed by Part 4.
57.Sub-paragraph (2) requires the appointment to be signed on behalf of each company by the ‘appropriate person’ for that company. The ‘appropriate person’ is defined by sub-paragraphs (4) and (5) as the proper officer of the company (usually the company secretary) or as such other person as has been authorised to act on its behalf for the purposes of the Schedule.
58.Sub-paragraph (3) provides a regulation-making power to allow the Commissioners to introduce rules governing an appointment within this paragraph, and mentions matters that may be covered in particular.
59.Paragraph 30 defines the term ‘the reporting body’ for the purposes of Part 4 as the company appointed under paragraph 29 for the relevant period of account, or the companies to which Part 4 applies (acting jointly) if no such appointment has effect.
60.Paragraph 31 requires the reporting body to send a ‘statement of allocated exemptions’ for the relevant period of account to HMRC. The statement must be received by HMRC within 12 months of the end of the period of account, and must comply with the requirements of paragraph 33.
61.Paragraph 32 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, again must comply with the requirements of paragraph 33 and must indicate where it differs from the previous statement. The revised statement supersedes the previous statement.
62.Paragraph 33 sets out the requirements of a statement of allocated exemptions in terms of the information it must contain and sub-paragraph (2) requires it to be signed by the appropriate person or persons.
63.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 an exemption, and identify the particular financing income amount(s) that are to be exempted for each, as defined by sub-paragraph (5). Sub-paragraph (6) requires that the total of the amounts specified must not exceed the lower of
	total disallowed amount, (see paragraph 15), and
	the tested income amount (see Part 8).
64.Paragraph 34 gives the effect of the statement of allocated exemptions. It is that a financing income amount of a company specified in a statement is not to be brought into account by the company for corporation tax purposes.
65.Paragraph 35 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..
66.Paragraph 36 provides a regulation-making power to allow the Commissioners to introduce rules governing a statement of allocated exemption and mentions matters that may be covered in particular.
67.Paragraph 37 sets out the consequences of a failure by a reporting body to submit a statement of allocated exemptions that complies with the requirements of paragraph 33.
68.Sub-paragraph (2) provides that subject to the provisions of the paragraph, each financing income amount for the relevant period of account of each company to which Part 4 applies is to be reduced to nil.
69.Sub-paragraphs (4) and (5) provide, by way of a formula, that if the result of reducing each financing income to nil is that the total reductions for the relevant period exceed the total disallowed amount, then the reduction for each company is reduced by that part of the excess that its reduction bears to the total reduction.
70.Paragraph 38 provides a regulation-making power to allow the Commissioners to introduce rules to ensure that a company to which a financing income amount is reduced under paragraph 30 has sufficient information to determine its amount and mentions matters that may be covered in particular.
71.Sub-paragraph (2) provides for the regulations to require relevant information to be sent from one group company to another.
72.Sub-paragraphs (3) and (4) allow the regulations to make provision for circumstances where insufficient information is held by a company for the purpose of determining its appropriate financing income reduction.
73.Sub-paragraph (5) provides for the regulations to extend the time limits for amending a corporation tax return in certain specified circumstances so as to reflect a reduction under paragraph 37.
74.Paragraph 39 provides that where in certain defined circumstances one company makes a payment to another company as result of an adjustment to taxable income or expenses made under Schedule 15, then those amounts are not to be taken into account in computing the taxable profits of either company.
75.Sub-paragraphs (1)(a) to (d) define the conditions which are necessary for the paragraph to apply. Firstly, the financing income amounts of a company (“company A”) and the financing expense amounts of another company (“company B”) must both have either not been brought into account or reduced by the provisions of Schedule 15. If, solely or mainly because of those circumstances, company A makes one or more payments “the balancing payments” to company B, then under sub-paragraph (2) those balancing payments are neither taken into account for the purposes of corporation tax nor treated as distributions.
76.Sub-paragraph (3) provides that the amount not taken into account by virtue of sub-paragraph (2) must not exceed the amount of either the financing income amounts or financing expense amounts not brought into account or reduced by the provisions of Schedule 15.