Corporate interest restriction ― group ratio method

Produced by Tolley

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

  • Corporate interest restriction ― group ratio method
  • The key steps in calculating the group ratio restriction
  • Calculating QNGIE
  • Calculating group-EBITDA
  • Calculating the GRP
  • Calculating the group ratio debt cap from QNGIE
  • Applying the group ratio method
  • How can the effect of the CIR be minimised?
  • Elections impacting QNGIE or group-EBITDA

Corporate interest restriction ― groupratio method

The groupratio method is an optional method of limiting the deduction available under the corporate interest restriction (CIR) rules. It is available by election. For a general overview of the regime, see the Corporate interest restriction ― overview guidance note, and for details of the default fixed ratio method, see the Corporate interest restriction ― fixed ratio method guidance note.

Where a group’s net tax-interest expense in a period of account would exceed the maximum interest capacity given by the fixed ratio method, a groupmay elect to calculate its basic interest allowance using the groupratio method instead. The groupratio method will generally only be beneficial to groups whose gearing worldwide is higher than the gearing of the companies subject to corporation tax in the UK.

As with the fixed ratio method, the groupratio method restricts the deductibility of interest based on the lower of two figures. These are:

  1. a proportion (the groupratio percentage (GRP)) of the aggregate tax-EBITDA of the companies in the CIR worldwide groupwhich are subject to UK corporation tax and

  2. the groupratio debt cap, which is generally the qualifying net groupinterest expense (QNGIE)

Broadly, this method differs from the fixed ratio method in two ways.

The fixed ratio of 30% is replaced with the GRP, which is variable year on year. The GRP reflects the proportion that the net external interest expense of the worldwide groupbears to the EBITDA of the worldwide group(based on the figures contained in the group’s consolidated accounts).

The groupratio debt cap is replaced by the fixed ratio debt cap. This is based on QNGIE which, unlike the adjusted net groupinterest expense (ANGIE) used for the fixed ratio debt cap, excludes interest on related party debt and certain equity-like securities from the calculation.

If the GRP is, or is likely to be, less than 30% and the debt cap will not

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