Corporate interest restriction regime | KPMG | UK
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Corporate interest restriction regime

Corporate interest restriction regime

The UK’s new corporate interest restriction regime applies from 1 April, and draft guidance and regulations have now been published.


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The UK’s new corporate interest restriction rules took effect from 1 April 2017, and will, broadly speaking, limit a group’s UK tax deductions for its net interest expense to the lower of a percentage of the UK tax EBITDA, taken from the tax computations, and a measure of the net group interest expense, taken from the group accounts. Just ahead of this, on 31 March, HMRC published an initial tranche of draft guidance on the new rules, focused on the core rules, with further draft guidance expected in May. Draft regulations have also been published, for consultation, which will introduce transitional rules to prevent unintended results occurring from mismatches between the tax and accounting treatment.

Financial statements group mismatch regulations

The corporate interest restriction rules are based, in part, on amounts recognised in the accounts of UK companies (which are used to prepare the UK tax computations) and in the group accounts. It has been recognised that, in certain circumstances, differences in the recognition of profits and losses between the group accounts and entity accounts can distort the effect of the rules in a particular period. Finance Bill 2017 contains a power to make regulations to address this issue, and the recently issued draft regulations allow for transitional adjustments in two scenarios.

Loan relationship accounted for at fair value

The first scenario is where on 1 April 2017 a company is a party to a loan relationship which is accounted for at amortised cost in the company accounts but at fair value (or fair value hedge accounting has been adopted) in the financial statements of the group.

In these circumstances, certain amounts used in the corporate interest restriction rules which are based on the group’s financial statements are determined as though amortised cost accounting had been used.

Debt buy-back

The second scenario is where on 1 April 2017 a loan relationship is owed between two members of a group, the liability was previously disclosed in the group balance sheet as a liability of the group but was derecognised when either the loan asset was acquired by a group member or the lender joined the group, and, broadly, no tax charge was triggered at that time.

In these circumstances, certain amounts used in the corporate interest restriction rules which are based on the group’s financial statements are adjusted to include the gain or loss in respect of the de-recognition on a just and reasonable basis over the remaining term of the loan.

Both of these sets of adjustments are required to be made if the conditions are satisfied, i.e. the taxpayer does not have a choice.

The proposed treatment only applies to loans in existence at 1 April 2017 and will not apply if similar accounting mismatches arise in respect of subsequent transactions.


The draft regulations are subject to consultation which closes on 26 May 2017.  We would encourage groups to assess whether they expect to have accounting mismatches which are not addressed by the draft regulations and to make representations to HMRC.

It is expected that the regulations, when enacted, will apply from 1 April 2017 from the start of the corporate interest restriction regime.

‘Devil is in the detail’

While we would recommend that businesses consider the implications of these rules, it is recognised that their application, in practice, can be extremely complicated. The devil is very much in the detail, and from next week, we will be running a series of articles looking at the detail of the rules in ‘bite sized chunks’.


For further information please contact :

Rob Norris

Mark Eaton

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