Corporate interest restriction ― calculating tax-interest expense amounts and tax-EBITDA

Produced by Tolley

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

  • Corporate interest restriction ― calculating tax-interest expense amounts and tax-EBITDA
  • Why do we need to calculate these amounts?
  • Calculating tax-interest expense amounts
  • Relevant loan relationship debits
  • Relevant derivative contract debits
  • Calculating tax-interest income amounts
  • Calculating aggregate net tax-expense or income
  • Calculating tax-EBITDA

Corporate interest restriction ― calculating tax-interest expense amounts and tax-EBITDA

Why do we need to calculate these amounts?

This guidance note sets out details of the initial calculations a group will need to undertake for the purposes of the corporate interest restriction (CIR) regime. For a general overview of the regime, see the Corporate interest restriction ― overview guidance note.

The first step to take when looking at the CIR is to calculate the aggregate net tax-interest expense for all companies in a worldwide group within the charge to UK corporation tax. In order to do this, it is necessary to calculate the net tax-interest expense (or income) for each relevant company and then sum these amounts. Details of how to go about this are set out under ‘Calculating tax-interest expense amounts’ below. Net tax-interest expense is also required to calculate tax-EBITDA.

In order to undertake the CIR calculations in both the fixed ratio method (see the Corporate interest restriction ― fixed ratio method guidance note) and the group ratio method (see the Corporate interest restriction ― group ratio method guidance note), it is first necessary to calculate tax-EBITDA for each relevant company. Again, these figures are the aggregate for the worldwide group. Aggregate tax-EBITDA is the amount to which the fixed ratio (30%) or, if an election is made, the variable group ratio percentage (GRP) is applied when calculating a group’s interest allowance for a given period of account. Details of how to do this are set out under ‘Calculating tax-EBITDA’ below.

Calculating tax-interest expense amounts

The starting figures to calculate tax-interest expense will be taken from the draft tax computation of all companies subject to UK corporation tax.

The list of relevant items can be divided into three main categories:

  1. relevant loan relationship debits

  2. relevant derivative contract debits

  3. the finance expense element of a finance lease, debt factoring or similar arrangement, or a service level agreement to the extent that the agreement is accounted for as a financial liability

TIOPA

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