The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
The group ratio 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 group may elect to calculate its basic interest allowance using the group ratio method instead. The group ratio 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 group ratio method restricts the deductibility of interest based on the lower of two figures. These are:
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 group bears to the EBITDA of the worldwide group (based on the figures contained in the group’s consolidated accounts).
The group ratio debt cap is replaced by the fixed ratio debt cap. This is based on QNGIE which, unlike the adjusted net group
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