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.
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.
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, firstname.lastname@example.org.
Thank you for your support