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This analysis is part of the Lexis®PSL Tax team's summary of the Spring Budget 2017.
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As announced at Budget 2016, and following several stages of consultation, new rules restricting the ability to obtain corporation tax deductions for interest and other finance amounts will come into effect from 1 April 2017.
The new rules will limit a group's deductions for net interest expense to 30% of tax-EBITDA in the UK (the fixed ratio rule), with an option for multinational groups to apply an alternative restriction based onthe net interest expense to EBITDA ratio
for the worldwide group (the group ratio rule). In both cases, deductions will also be capped to ensure that the net UK interest deduction does not exceed the total net interest expense of the worldwide group (the modified debt cap) and the existing
debt cap legislation will be repealed. Only groups with net interest expense in the UK of more than £2m annually will have to apply the rules.
Draft legislation for the new rules was published in stages, on5 December 2016 and 26 January 2017. In response
to comments received, the government has now announced that several changes to the provisions will be reflected in FB 2017 in order to ensure that the rules do not give rise to unintended consequences or impose unnecessary compliance burdens. The
government has announced that these changes will, in particular:
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