CFM96005 - Group-interest: ANGIE: pre-commencement expenditure
TIOPA10/S413
The calculation of net group-interest expense (NGIE) is based on the amounts recognised as items of profit or loss. Where a company incurs financing costs (for example, interest) before commencing a trade or a non-UK resident company incurs costs prior to its UK property business commencing, there can be a mismatch between the period in which the costs are recognised in the financial statements and the period in which they are brought into account for tax.
F(2)A23 amends the adjustments required by TIOPA10/S413 to ensure that amounts are now included in ANGIE at the time they are brought into account for tax, rather than at the point they are recognised in financial statements.
The commencement date of these amendments depends upon the nature of the debits in question.
Where the debits are referable to times before the UK property business commences, the amendments do not apply where the period of account ends on or after 6 April 2020 and begins before 1 April 2023 unless the reporting company elects otherwise.
Elections should be made by email to the relevant HMRC Customer Compliance Manager (CCM) or to [email protected] if there is no relevant CCM.
An election will impact upon the calculations that form the basis of the interest restriction return (IRR) and so must be made within the relevant time limits for submitting an IRR. If the time limit to amend an IRR has passed, an election cannot be given effect.
A reporting company will need to submit a revised IRR where previous figures have become incorrect as a result of an election being made.
Where the debits are in respect of pre-trading expenditure, the amendments apply to periods of account where a CTA09/S330 election has been made on or after the date of royal assent, 11 July 2023, in respect of a relevant accounting period.
The following guidance only applies where the changes made by F(2) A23 are in point.
Debits referable to times before the UK property business commences (CTA09/S330ZA and S607ZA)
From 6 April 2020, a non-resident company which carries on a UK property business is taxable to UK Corporation Tax on profits from that business. The non-resident company will not have an accounting period until it starts to carry on the property business. This means special rules are necessary to bring into account for tax any debits arising on loan relationships (CTA09/S330ZA) or derivative contracts (CTA09/S607ZA) before this accounting period commences. This will typically cover the period during which the property is being constructed or developed.
These rules are mandatory and, provided certain conditions are met, treat the debits as arising in the accounting period in which it starts to carry on the property business. Further information can be found at CFM32110 for loan relationships and CFM51095 for derivative contracts.
TIOPA10/S413 requires certain upward and downward adjustments where CTA09/S330ZA or 607ZA apply. These adjustments ensure the amount is recognised in ANGIE when it is brought into account for tax rather than when it is recognised in financial statements. The adjustments are slightly more complicated when debits arise on a derivative contract. This is because TIOPA10/S413 requires the assumption that an election has been made into regulation 6A of the Disregard Regulations when identifying the amounts brought into account. This ensures the treatment is consistent with TIOPA10/S420 which requires the same assumption be made when calculating NGIE. CFM96070 and CFM51095 has more information on this.
Example
A non-resident company, Lettings Sarl, starts a UK property business on 1 April 2025 and incurs loan relationship expenses of £4m in the 12 months preceding this date.
These expenses are recognised in the financial statements for the worldwide group for the period ending 31 March 2025 but are not brought into account by a member of the group. They are expected to be brought into account when Lettings Sarl commences their property business.
An accounting period for Lettings Sarl will start on 1 April 2025 and a loan relationship debit of £4m will be brought into account in that period by CTA09/S330ZA.
The worldwide group has NGIE of £175m for the period ended 31 March 2025 and NGIE of £205m for the period ended 31 March 2026.
When calculating ANGIE, a downward adjustment of £4m will be made in the period ending 31 March 2025 resulting in ANGIE of £171m. An upward adjustment will be made in the period ending 31 March 2026 resulting in ANGIE of £209m.
If Lettings Sarl was in a single-company worldwide group, then it would not be required to calculate NGIE or ANGIE for the period ending 31 March 2025 because the CIR rules would not apply. It would then make the same £4m upward adjustment to ANGIE in the period ending 31 March 2026.
Debits in respect of pre-trading expenditure (CTA09/S330)
A company intending to carry on a trade may incur financing costs before it begins to trade and will typically not have enough income in this pre-trade period to fully relieve these costs. Provided certain conditions are met, CTA09/S330 allows the company to make an election which treats the debit as arising in the accounting period in which the company begins to carry on a trade. CFM32100 has further information on this.
As with debits which are referable to times before a non-UK resident company commences its UK property business, TIOPA10/S413 requires certain upward and downward adjustments where a CTA09/S330 election has been made and the amendments made by F(2)A23 apply. These ensure amounts are recognised in ANGIE at the point they are brought into account for tax.
Example
A company, Power Station Ltd, starts trading on 1 January 2025 and incurs non-trading debits of £12m in the 12 months leading up to this date.
Power Station Ltd makes a valid CTA09/S330 election to treat the debits as arising in the accounting period starting 1 January 2025 for tax purposes. The debits are included in financial statements for the worldwide group for the period ending 31 December 2024.
The worldwide group has NGIE of £50m for the period ending 31 December 2024 and NGIE of £60m for the period ending 31 December 2025.
When calculating ANGIE, a downward adjustment of £12m will be made in the period ending 31 December 2024 resulting in ANGIE of £38m. An upward adjustment will be made in the period ending 31 December 2025 resulting in ANGIE of £72m.