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
  • The key steps in calculating the fixed ratio restriction
  • Calculating NGIE and ANGIE
  • Applying the fixed ratio method
  • How can the effect of the CIR be minimised?

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.

TIOPA 2010, ss 396, 397; CFM95230

The fixed ratio method restricts the deductibility of interest based on the lower of two figures. These are:

  • a proportion (30%) of the aggregate tax-EBITDA of the companies in the CIR worldwide group which are subject to UK corporation tax, and
  • the fixed ratio debt cap, which is generally the adjusted net group interest expense (ANGIE)

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 key steps in calculating the fixed ratio restriction

The fixed ratio process involves a number of detailed steps:

  • 1)multiply tax-EBITDA by 30% ― see the Corporate interest restriction ― calculating tax-interest expense amounts and tax-EBITDA guidance note for how to calculate tax-EBITDA
  • 2)determine the fixed ratio debt cap ― this is done by calculating the

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