Corporate interest restriction: Administration - KPMG United Kingdom
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Corporate interest restriction ‘devil is in the detail’ – administration

Corporate interest restriction: Administration

This week’s article looks at some of the administrative requirements of the new regime.


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This is the ninth in our series of articles looking at some of the detail of the new corporate interest restriction (CIR) rules, which have been removed from Finance Bill 2017. Based upon HMRC messaging that “There has been no policy change and the Government has announced it will legislate for the provisions at the earliest opportunity in the next Parliament” we would recommend that groups assume that the rules will apply from 1 April 2017 until an announcement is made by Ministers. This week’s article, the first of two, looks at the extensive administrative requirements of the new regime. Most groups will appoint a reporting company which will submit an annual return showing the allocation of any interest disallowances and the reactivation of previously disallowed interest. Since disallowed interest, unused interest allowance and the excess debt cap amount are each carried forward, it will be appropriate to monitor the rules over multiple periods, rather than looking at each period discretely. Various elections will also need to be considered.

The CIR regime requires the amount of disallowed or reactivated net interest-like expenses to be computed for the group and then allocated between UK group companies. There are detailed rules regarding how these allocations are to be made and other aspects of administering the rules.

This week, we will look at:

  • The appointment of a ‘reporting company’;
  • The filing of an ‘interest restriction return’;
  • The possibility of filing an ‘abbreviated return’;
  • The allocation of disallowances and reactivations; and
  • Elections within the CIR regime.

Reporting company
The responsibility to file a CIR return falls on the ‘reporting company’, which would normally be appointed by the group, but HMRC may appoint one if not.

The reporting company must be a non-dormant company that was subject to corporation tax for at least part of the period, whose appointment has been authorised by at least 50 percent of the eligible companies. When a reporting company is appointed, it must inform all UK group companies (and the ultimate parent, if not itself a UK group company).

Interest restriction return
The reporting company must submit an interest restriction return (IRR) for each period of account.

The IRR must contain:

  • Details of the composition of the worldwide group, including a list of group companies within the charge to CT;
  • A statement of calculations (determining the amount to be disallowed or reactivated); 
  • A statement of allocated interest restrictions or reactivations; and
  • Certain group level elections.

Abbreviated return
Where a group is not subject to interest restriction in a period of account, it may elect to submit an abbreviated return in relation to that period.

An abbreviated return must state that the group is not subject to interest restrictions for the return period and must include details of the composition of the worldwide group. Draft HMRC guidance says that a statement of calculations is not required, as long as the group has made a ‘reasonable estimate’ that no disallowance applies.

Where an abbreviated return is submitted for a period of account it will not be possible to use any excess interest allowance for that period in a later period. If a group later wishes to access any interest allowance from these periods, there is an extended time limit of up to 60 months for submitting a revised and full return.

Allocation of disallowances and reactivations
As noted above, the IRR must contain a statement of allocated interest restrictions or reactivations. In most cases, disallowances will be allocated between UK group companies at the discretion of the reporting company. Note that unlike under the old worldwide debt cap rules, the disallowance allocated to an individual company must not exceed the company’s net interest expense for the period.

Each UK group company should be identified in the IRR as either a ‘consenting’ or ‘non-consenting’ company. Broadly speaking, a ‘consenting company’ is a company that has agreed to accept and be bound by discretionary apportionments of tax-interest by the reporting company. By contrast, a ‘non-consenting company’ may elect to be apportioned no more than its pro-rata share of the group's total disallowed amount. This could be relevant if the company is not wholly owned by the group.

If for some reason a group has no reporting company, but a disallowance is due, each UK group company must file its company tax return on the basis of a pro-rata apportionment of the group’s disallowance, which it will need to calculate.

Allocations of reactivations between group companies are only at the discretion of the reporting company, and specific rules determine the amounts that may be reactivated. Any disallowances or activations allocated in an IRR automatically flow through as amendments to a group company’s tax return.

A group ratio election (and various elections adjusting the way the group ratio and/or the debt cap are calculated) must be made in the IRR. Other elections (including the public infrastructure election, elections adjusting the way tax-interest and tax-EBITDA are calculated and elections regarding the group’s period of account and financial statements) must be made separately outside the IRR.

Non-consenting company elections and elections regarding which types of expenses are disallowed/reactivated must be made in the company tax returns.

The previous articles in this series can be found here.

For further information please contact:

Rob Norris

Richard Rudman

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