IFM40365 | Becoming a QAHC: apportionment of income and expenses across ring fence

FA22/SCH2/PARA20 and PARA21

Apportionment of income and expenses

PARA 20(6) provides for the apportionment of any amounts that relate to both ring fence and non-ring fence activity. Any such apportionment should be on a just and reasonable basis.

In relation to staff costs, for example, it would be reasonable to consider the amount of staff time required to manage ring fence and non-ring fence assets, and to use that time apportionment as a just and reasonable basis for the apportionment of staff costs.

Example: loan relationship debits split between UK and overseas property business.

Company A is a QAHC that incurs interest costs (loan relationship debits) in relation to its overseas property business and its UK property business. The profits of the overseas property business are taxable in another jurisdiction (see PARA 52), and therefore within the QAHC ring fence business. Company A incurs overall loan relationship debits of £10m in relation to its property business. 75 percent of the related borrowing has been invested in the UK property business.

On a just and reasonable split of the £10m loan relationship debits, £2.5m should be allocated to the overseas property business within the QAHC ring fence, and £7.5m to the UK property business outside the QAHC ring fence.