INTM561210 - Hybrids: allocation of DII within a group: overview

Chapter 12A of Part 6A, TIOPA 2010 was introduced by Finance Act 2021, and takes effect in relation to accounting periods beginning on or after 1 January 2021. Chapter 12A makes provision for the allocation of dual inclusion income (DII) within members of the same group of companies. The company with a shortfall in DII (that is a counteraction amount in excess of DII) may make a claim to use another group members DII surplus (that is when that other company has an excess of DII over a counteraction amount).

Double deduction mismatches are mainly counteracted in chapters 9 (see INTM557000) and 10 (see INTM558000). In both cases, these double deductions are restricted to use against dual inclusion income. DII is also relevant to counteractions described in chapter 5 (see INTM553090), chapter 6 (see INTM554070) and chapter 11 (see INTM559300).

Dual Inclusion Income

DII is income that is treated as ordinary income in both the UK and an overseas jurisdiction and includes amounts of ‘deemed dual inclusion income’, see INTM553100.

DII surplus

Where a company is in receipt of dual inclusion income in an accounting period, and the DII exceeds the counteraction amount – the excess is the DII surplus.

The accounting period in which this occurs is known as the surplus period.

Counteraction amount

This is the total amount of counteractions that are applicable under certain sections of chapters 5, 6, 9, 10 and 11 of Part 6A during the surplus period. All the relevant counteractions are listed at section 259ZMF(4).

DII shortfall

Where a company is subject to a counteraction amount that exceeds its dual inclusion income during an accounting period – the excess is the DII shortfall.

The accounting period is known as the shortfall period.

Deductions that are restricted under Part 6A but are permitted to be carried forward by sections 259EC(3), 259FB(2), 259IB(3), 259IB(5), 259IC(5), 259IC(7), 259JB(3), 259JB(5), 259JD(3), 259JD(5) and 259LA(3) cannot be included in the calculation of DII shortfall, as they arose before the shortfall period.

Group of companies

For the purposes of this chapter, two companies are in the same group of companies if one is a 75% subsidiary of the other, or they are 75% subsidiaries of a third company.

75% subsidiary

This takes the same meaning as in section 151, CTA 2010, that at least 75% of ordinary share capital of the subsidiary is beneficially held by the shareholder.

The chapter applies if conditions A to E are met. The conditions are as follows

Condition A

  • A company (Company A) has a DII surplus during an accounting period (the surplus period)

Condition B

  • A company (Company B) has a DII shortfall during an accounting period (the shortfall period)

Condition C

  • There is a period that is common to both the surplus period and the shortfall period (the overlapping period)

Condition D

  • There is a time during the overlapping period when both Company A and Company B are within the charge to corporation tax

Condition E

  • There is a time during the overlapping period when both Company A and Company B are members of the same group of companies

Allocation of DII surplus

If all five conditions are met Company B can make a claim (an allocation claim) for all or part of Company A’s unused DII surplus. There are five requirements to making a claim, see INTM561300.

The unused part of the DII surplus

This is the DII surplus of Company A for the overlapping period less any amounts of DII surplus already claimed by other companies (prior allocation claim) for that period.

The DII surplus for the overlapping period is the proportion of the surplus period that falls in the overlapping period multiplied by the DII surplus, see INTM561350.

The unused part of the DII shortfall

This is the DII shortfall of Company B during the shortfall period less the total amount treated as DII as a result of a prior allocation claim (previously matched amount).

Amounts of DII shortfall are matched to allocation claims in the order that claims are made. Where claims are made at the same time, claims can be treated in the order elected by Company B or in an order determined by HMRC if there is no such election, see INTM561400.