Corporation Tax

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

Produced by Tolley
  • 19 Oct 2021 23:05

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

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

Think Tax.
Think Tolley.

Critical, comprehensive and up-to-date tax information

LEARN MORE LEARN MORE

Popular Articles

Using the spouse exemption

Arguably, the most important exemption from IHT is the married couple / civil partner exemption.There is no IHT to pay on gifts from husband to wife and vice versa, or from one civil partner to the other (referred to collectively in this note as ‘spouses’). The exemption applies to inter-spouse

19 Oct 2021 23:13 | Produced by Tolley in association with Emma Haley at Boodle Hatfield LLP Read more Read more

Definition of a close company

The detailed definition of a close company is set out below but in summary the rules are targeted at those companies where the owners can manipulate the activities of the company to influence their own tax position. Therefore, broadly speaking, most owner-managed or private family businesses will be

22 Oct 2021 10:21 | Produced by Tolley Read more Read more

Current year relief and carry back losses

Current year relief and carry back lossesCurrent year relief for trading lossesTrading losses can be offset against total profits of the same period. Total profits covers, for example, chargeable gains or non-exempt dividends.The maximum claim for relief is the lower of the available loss or the

22 Dec 2021 16:13 | Produced by Tolley Read more Read more