Corporate interest restriction ― frequently asked questions

By Tolley

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

  • Corporate interest restriction ― frequently asked questions
  • How does the CIR apply if a company’s accounting periods (APs) do not align with the period of account (PoA)?
  • What is the impact of a reorganisation on the CIR calculation?
  • What are the implications if one (or more) company(ies) in the group has (have) not used acceptable GAAP to draw up their accounts?
  • What happens if a subsidiary is not consolidated in the accounts but is held at fair value?
  • What is the treatment of joint venture companies in a group for CIR?
  • How does the CIR interact with the late paid interest rules?
  • What if the group has a much higher tax-EBITDA in one period?
  • What should a group consider if it is near the £2 million interest expense de minimis limit, or fluctuates around it from period to period?

The following scenarios are intended to illustrate how the corporate interest restriction CIR will apply in a variety of real world situations The scenarios are intended to be more complex than the most simple situations but not uncommon For a general overview of the regime see the Introduction to the corporate interest restriction guidance note How does the CIR apply if a company s accounting periods APs do not align with the period of account PoA Most of the computations and allocations required by the CIR are carried out by reference to a group s PoA UK corporation tax however operates by reference to APs of individual companies which do not necessarily align with the periods for which a group draws up consolidated financial statements The term used to describe an AP of any group company that falls wholly or partly within a given PoA is a relevant AP TIOPA 2010 s 490 Where a UK group company s APs exactly align with the periods for which its group draws up financial statements that company will have only one relevant AP and it will be relatively straightforward to derive the necessary amounts from the company s tax computations to carry out the group level CIR calculations Where a UK group company s APs do not exactly align with the group s PoA that company may have more than one relevant AP relating to a given PoA Where this is the case each relevant AP will be within the scope of the CIR calculations However certain apportionment calculations need to be carried out to ensure that only amounts referable to such part of the company s AP that overlaps with the PoA are factored into the relevant group level computations Parts of a company s relevant APs that do not overlap with the relevant group PoA are referred to as disregarded periods Amounts are apportioned to disregarded periods on a just and reasonable basis See Example

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