Part 8 – The ‘tested expense amount’ and ‘tested income amount’
156.Part 8 sets out how two key amounts, the ‘tested expense amount’ and the ‘tested income amount are to be calculated.
157.The ‘tested expense amount’ must be calculated so that, by comparison with the ‘available amount’ dealt with in Part 8, it may be determined whether the adjustments provided for by Parts 3 and 4 are necessary. The ‘tested income amount’ is required in calculating the amount of financing income to be exempted from corporation tax by Part 4.
158.Paragraph 70 (1) provides that the ‘tested expense amount’ for a worldwide group is built up from the sum of each relevant group company’s ‘net financing deduction’.
159.Sub-paragraphs (2) and (3) explain that the ‘net financing deduction’ of a company for a period of account is the excess of the company’s ‘financing expense amounts’ over its ‘financing income amounts’. Any amounts arising to a company as a result of a transaction which took place when it was not a relevant group company are ignored for this purpose. A transaction in this context means an amount of financing expense or income that is payable or receivable.
160.Sub-paragraph (4) specifies that if the computation of the ‘net financing deduction’ produces a negative figure, the amount is treated as nil.
161.Sub-paragraph (5) provides that if the ‘net financing deduction’ is small, as defined by the de minimis limit set by paragraph 72, then the amount is treated as nil.
162.Paragraph 71 contains provision about the tested income amount. Sub-paragraph (1) provides that the ‘tested income amount’ for a worldwide group is built up from the sum of each UK group company’s ‘net financing incomes’.
163.Sub-paragraphs (2) and (3) provide that the ‘net financing income’ of a company for a period of account is the excess of the company’s ‘financing income amounts’ over its ‘financing expense amounts’. Any amounts arising to a company as a result of a transaction which took place when it was not a UK group company are ignored for this purpose. A transaction in this context means an amount of financing expense or income that is payable or receivable.
164.Sub-paragraphs (4) and (5) provide for the ‘net financing income’ to be treated as nil if the computation produces a negative figure or an amount which is small as defined in Paragraph 72.
165.Paragraph 72 provides that the figure used to determine whether a relevant group company’s net financing deduction is small, or whether a UK group company’s net financing income is small, is £500,000.
166.Sub-paragraphs (2)-(4) provide for this amount to be increased or decreased by Treasury order, subject to affirmative resolution, with prospective effect.
