Corporate interest restriction ― overview

Produced by Tolley

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

  • Corporate interest restriction ― overview
  • How does the CIR work?
  • When does the CIR not apply?
  • When does the CIR apply?
  • Carried forward amounts under the CIR rules
  • Practical considerations ― corporate interest restriction
  • Links to articles ― corporate interest restriction

Corporate interest restriction ― overview

The corporate interest restriction (CIR) essentially limits the amount of interest expense a company can deduct from its taxable profits if the interest expense is over £2 million. The actual mechanics of the CIR calculation are highly complex (the legislation is over 150 pages long) and are detailed below.

Before looking at the detail of the rules, it is important to note that there are a few points that are specific to the CIR regime, as follows:

  1. the rules operate in relation to the worldwide group and by reference to the period of account (PoA) of the group for which the consolidated financial statements are prepared. A worldwide group usually refers to an ultimate parent and each of its consolidated subsidiaries, although it is possible to have a single-company worldwide group

  2. the CIR works on a group rather than a company-by-company basis which is different to most taxing provisions. What this means is that most calculations required by the rules are carried out at the group level with any interest restrictions etc being made afterwards to individual companies

The CIR applies to ‘tax interest expense’. This is the legislative phrase used to encompass a wide range of interest and interest-like transactions such as:

  1. most loan relationship debits

  2. some derivative contract debits

  3. the finance cost element of certain arrangements or transactions involving finance leasing, debt factoring or service concession arrangements

TIOPA 2010, s 382

For simplicity, when the word interest is used in this guidance note, it includes these transactions.

See Simon’s Taxes D1.14 for a comprehensive discussion of all aspects of the regime.

An overview of the regime together with worked examples are also provided in the following videos:

  1. Corporate interest restriction ― the basics (A), which covers key definitions, identifying the worldwide group and calculating ANGIE

  2. Corporate interest restriction ― the basics (B), which covers the calculation of aggregate tax EBITDA, the interest allowance, the interest capacity

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