INTM520110 - Thin capitalisation: practical guidance: creating agreements between HMRC and the group: example of an agreement: model ATCA - appendix 2 - gearing ratio
HMRC has issued a model ATCA the body of which is at INTM520090. It is not intended for it to be followed slavishly, but it may serve as a template for many cases and as an aide memoire for the main features which HMRC is likely to expect to see in an agreement.
The model agreement바카라 사이트™s second appendix is as follows:
Gearing Ratio
| Period ending | For example, Debt/EBITDA (or Equity or LTV) |
|---|---|
| 20X1 | b : 1 |
| 20X2 | b : 1 |
| 20X3 | b : 1 |
| 20X4 | b : 1 |
| 20X5 | b : 1 |
Calculation of Disallowance - Debt to EBITDA (or LTV)
The disallowance will be calculated by reference to the ratio shown above for the relevant period (바카라 사이트˜the required ratio바카라 사이트™) and the gearing ratio calculated using the actual results of the UK Group (바카라 사이트˜the actual ratio바카라 사이트™).
When using a debt to EBITDA (or LTV) ratio to measure gearing, allowable interest is derived from the following formula which calculates the amount of allowable debt:
required ratio (expressed as a number) x actual debt = allowable debt
actual ratio (expressed as a number)
Illustrative calculation for period ending 31 December 20X1 - Debt to EBITDA (or LTV)
Assume the agreement has a Debt to EBITDA covenant, and the actual figures for the period are debt of £d and an actual Debt to EBITDA ratio of a:1 which is greater than the required ratio (b:1). Allowable debt is therefore calculated as follows:
b x £d = allowable debt
b
This calculates the value of arm바카라 사이트™s length debt from which allowable interest can be derived.
Calculation of Disallowance - Debt to Equity
When using a debt to equity ratio to measure gearing, allowable interest is derived from the following formula which calculates the amount of allowable debt:
[actual debt (£) + actual equity (£)] - actual debt (£) + actual equity (£)
1+ required ratio (expressed as a number)
Illustrative calculation for period ending 31 December 20X1 - Debt to Equity
Assume the agreement has a debt to equity covenant, and the actual figures for the period are debt of £d and equity of £e and an actual debt to equity ratio of a:1 which is greater than the required ratio (b:1). Allowable debt is calculated as follows:
(£d + £e) - (£d + £e) = £n
(1 + b)