Corporate interest restriction ― fixed ratio method

By Tolley
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The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Corporate interest restriction ― fixed ratio method
  • Introduction
  • The key steps in calculating the fixed ratio restriction
  • Calculating NGIE and ANGIE
  • Applying the fixed ratio method
  • Planning points to minimise a disallowance

Introduction

The fixed ratio method is the default method of limiting the deduction available under the corporate interest restriction (CIR) rules, which apply from 1 April 2017. For a general overview of the regime, see the Introduction to the corporate interest restriction guidance note and related examples, which should be read prior to reading this guidance note.

The fixed ratio method restricts the deductibility of interest based on a proportion of tax-EBITDA, which is a measure of adjusted taxable income. An alternative restriction, known as ‘the group ratio method’, is available by election only. This guidance note deals solely with the fixed ratio method. See the Corporate interest restriction ― group ratio method guidance note for details of the alternative restriction.

The fixed ratio method involves comparing two caps. The lower of the two determines how much is deductible. The first cap is based on a 30% proportion of the aggregate tax-EBITDA of the companies subject to corporation tax.

The second cap, known as the fixed ratio debt cap, is an amended version of the worldwide debt cap, which looks at the net interest-like amounts appearing in the worldwide group accounts.

The fixed ratio debt cap is computed by calculating the ‘adjusted net group interest expense’ (ANGIE), which is derived from the ‘net group interest expense’ (NGIE) ― both concepts are discussed further below.

References in this guidance note are to HMRC’s guidance . This guidance is in the process of being transitioned into the Corporate Finance manual but until all the content is available in the manual, it is necessary to refer to the guidance .

The latest version of guidance, published on 28 February 2018, includes commentary on additional technical changes to ensure the regime works as intended, which are contained within Finance Act 2018, s 24 and Schedule 8.

The key steps in

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