The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
The fixed ratio method is the default method of limiting the deduction available under the corporate interest restriction (CIR) rules. For a general overview of the regime, see the Corporate interest restriction ― overview guidance note.
The fixed ratio method restricts the deductibility of interest based on the lower of two figures. These are:
An alternative method for calculating the restriction, known as the group ratio method, is available by election only. See the Corporate interest restriction ― group ratio method guidance note for details.
The fixed ratio method is so-called as it uses a fixed ratio (30%) of tax-EBITDA. The fixed ratio debt cap looks at the external net group interest expense (sometimes referred to by the acronym NGIE) of the worldwide group based on the consolidated P&L. This is then subject to a series of further complicated adjustments to align the result more closely with UK tax principles, the result of which is the adjusted net group-interest expense (ANGIE). If a group has more external debt in the UK than in the worldwide group overall, then ANGIE may produce a lower cap than the fixed ratio of tax-EBITDA.
The fixed ratio process involves a number of detailed steps:
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