The United Kingdom’s transfer-pricing measures apply to the provision of finance (as well as to trading income and expenses). As a result, companies must self-assess their tax liability on financing transactions using the arm’s-Length principle. Consequently, HMRC may challenge interest deductions on the grounds that, based on all of the circumstances, the loan would not have been made at all or that the amount loaned or the interest rate would have been less, if the lender was an unrelated third party acting at arm’s length. Worldwide Debt Cap. The World wide Debt Cap (WWDC) is a cap on allowable interest deductions in addition to thin-capitalization restrictions and other anti-avoidance provisions. The WWDC provisions are de signed to restrict the UK tax deduction available for financing expenses of large groups based on the gross financing expense of the worldwide group. The WWDC legislation applies to accounting periods beginning on or after 1 January 2010. The WWDC provisions include a gateway test. If the gateway test is satisfied, the UK group falls outside of the remaining provisions. Under the gateway test, broadly, the WWDC applies only if a group’s UK net debt exceeds 75% of the worldwide gross debt. If the WWDC applies and if the tested expense amount exceeds the available amount, the excess amount is disallowed. Broadly, the tested expense amount is the aggregate net finance expense of all UK group companies that have a net finance expense above GBP500,000, and the available amount is the group’s external worldwide finance expense which is taken from the consolidated financial statements. If a disallowance arises, some interest income may be exempted from UK tax. The amount of the exempted income is limited to the lower of the aggregate net finance income of all UK group companies (above GBP500,000) and the total disallowed amount. It is possible to elect to not apply the GBP500,000 threshold mentioned above to avoid anomalies that could otherwise result.
Charitable bodies are generally exempt from corporation tax on their income.
Non‑capital expenses incurred for the purpose of the business. Depreciation allowances are allowed on certain types of capital expenditure (e.g. plant and machinery), at a rate of either 10% or 20% writing down allowance (WDA), depending on the type of asset. This excludes business cars, for which there is a separate regime with WDA determined by limits on emissions. Special rules give 100% environmental capital allowances to a restricted set of assets. All businesses are entitled to 100% WDA on the first £100k of capital expenditure (excluding business cars).
Trading losses may be offset against future profits from the same trade or against other profits of the same accounting period or previous year. Capital losses may be offset only against capital gains and may only be carried forward.