INTM579050 - Thin capitalisation: debt: equity ratio

The UK borrowing unit

Before 1 April 2004 the legislation at ICTA88/S209(2)(da) and ICTA88/SCH28AA could both be used in thin capitalisation cases. For chargeable periods beginning on or after 1 April 2004 ICTA88/S209(2)(da) was repealed, and ICTA88/SCH28AA was revised so that it could be used for all thin capitalisation cases. The aim was that the revised ICTA88/SCH28AA duplicated, as far as possible, the provisions of the repealed legislation.

When looking at the debt:equity ratio in order to decide whether a company or group is thinly capitalised, it is necessary to remember that the UK legislation relating to ICTA88/S209(2)(da) required that it is the ‘UK borrowing unit’ that must be examined. The legislation is contained at ICTA88/S209(8D) (also repealed for chargeable periods beginning on or after 1 April 2004), and is considered in more detail at INTM544060. The legislation is intended to reflect the fact that a third-party lender would look at the consolidated position of a group.

For details of the borrowing entity to be considered for accounting periods commencing on or after 1 April 2004 see INTM561000 onwards.