CFM90630 - Debt cap: gateway test: UK net debt derived from financial statements of group companies

{#IDAMMHID}This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

The gateway test comparator for the UK part of a group is drawn from the financial statements of the group’s relevant group companies {#}

The gateway test involves a comparison of the UK net debt of a group with the gross debt of the consolidated group. TIOPA10/S262 explains that the figure of UK net debt is the sum of the net debt of each relevant group company and group securitisation company for a period of account of the worldwide group and includes the net debt amount of a UK company that was a relevant group company or group securitisation company at any time during that period of account. Note that the UK net debt figure for the group takes no account of companies whose financial assets exceed their financial liabilities.

The net debt amount of a relevant group company or group securitisation company is the average of the net debt of the company at its start date and end date (see TIOPA10/S262(2). CFM90680 provides detailed guidance of how the net debt amount for a company is calculated.

The start date and end date of any relevant group company or group securitisation company are derived from the period of account of the worldwide group. The start date is the first day of the period of account of the worldwide group and the end date is the last day of the period of account of the worldwide group (TIOPA10/S262 (8) of). CFM90650 explains what happens when the company is not a relevant group company or group securitisation company for the whole of the period of account of the worldwide group, or the company has a different accounting period to the worldwide group.

The net debt for any relevant group company or group securitisation company, at any date, is the sum of the company’s relevant liabilities at that date, less the sum of that company’s relevant assets at that date (see TIOPA10/S263 (1) ). The relevant liabilities and relevant assets are the amounts that are disclosed on the company’s balance sheet.

An amount disclosed on a balance sheet does not have to be visible on the face of the balance sheet or in notes to the balance sheet; an amount is disclosed on a balance sheet if it is included in the assets or liabilities reported on the balance sheet.

In most cases a relevant group company or group securitisation company will have the same period of account as its ultimate parent and so its accounting periods will generally coincide with the periods of account of the worldwide group. In such a case, the net debt amount for the accounting period is the average of the figures taken from the closing balance sheet of the company for that period and - strictly - from a balance sheet for the first day of that period. In practice companies will not prepare opening balance sheets for an accounting period. TIOPA10/S265 (2) explains that where a UK company has not prepared a balance sheet for a particular date, the reference to amounts disclosed in the balance sheet are to amounts that would be disclosed if a balance sheet were drawn up for that date. In applying TIOPA10/S265 (2) you should take the balance sheet for the previous accounting period as the balance sheet that would be drawn up for the first day of the accounting period being considered.

For example, if a relevant group company and the consolidated group both prepare their accounts to 31 December each year, the net debt amount for the relevant group company for the year ended 31 December 2010 will be taken from the balance sheet as at 31 December 2009 and the balance sheet as at 31 December 2010.

CFM90640 explains how to deal with UK permanent establishments that are relevant group companies for the purpose of the gateway test.