I was talking to the Corporate Interest Restriction (CIR) team, who asked if I could remind agents that from 1 April 2017, if your client’s company or group has more than £2 million of net interest and similar financing costs per year, the CIR rules may restrict interest deductions for UK Corporation Tax purposes.
A UK domestic group has to apply the legislation and even if the group only has a single member, it may still be useful to appoint a reporting company and file an interest restriction return (IRR).
There are a number of actions that may prove beneficial to UK domestic groups and singleton companies. To take advantage of these you must ensure your clients appoint a reporting company before the deadline. 31 March 2018 is the deadline for group periods of account ending between 1 April and 30 September 2017, thereafter six months after the end of the period.
UK Domestic Groups
A key issue for a group operating wholly in the UK is that the net tax deduction for finance costs for the group is limited by its debt cap, normally the group’s ‘adjusted net group-interest expense’ (ANGIE). This measure is based on the group’s consolidated financial statements and is likely to be close to the group’s aggregate net tax-interest expense – a tax measure of the net expense before restriction.
Any mismatch arising is likely to relate to differences between tax and accounting measures and such a mismatch could lead to a restriction. To counter this, UK domestic groups can:
- make an Interest Allowance (alternative method of calculation) election which adjusts the computation of the ANGIE so as to align it more closely with a tax measure of the net expense, and/or
- make a Group Ratio election which is useful for highly leveraged groups because it substitutes the groups’ own ratio of qualifying net group interest-expense (QNGIE) to group-EBITDA (earnings before interest, taxes, depreciation and amortisation) where this is higher than the 30% fixed ratio.
To benefit from these, groups must appoint a reporting company and make an election in their IRR, which may be an abbreviated return if no restriction arises.
Carry-forward rules
Groups that are not subject to a restriction in the current year may still wish to appoint a reporting company. If, in the next five years, they find that they are facing a restriction they can go back and replace an abbreviated return with a full IRR. This will allow them to bring forward any unused interest allowance from the earlier periods.
For guidance about the CIR legislation, please visit the GOV.UK webpage, Corporate Interest Restriction guidance. For online submissions, visit this link.
Your feedback is invaluable in providing us with a clearer understanding of the needs of our customers. As such, any comments about this guidance can be emailed to, interest-restriction.mailbox@hmrc.gsi.gov.uk.
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