Introduction to the corporate interest restriction

By Tolley

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

  • Introduction to the corporate interest restriction
  • Background
  • How the CIR works
  • Carried forward amounts
  • Interest restriction returns and other tax administration
  • Practical considerations
  • Further reading


In most instances, a company’s financing income and expenses are taxed or relieved under the loan relationships regime. There are several different sets of rules governing the amount and timing of the tax deductions which are available. However, additional restrictions have been proposed which will apply to a wide range of interest and interest-like transactions such as:

  • most loan relationship debits
  • some derivative contract debits
  • the finance cost element of certain arrangements or transactions involving finance leasing, debt factoring or service concession arrangements

CTA 2009, ss 292–476 (Pt 5)

The legislation in this area uses the term ‘tax-interest expense’ to include all the financing costs listed above. For simplicity, the term ‘interest’ is used in this guidance note.

TIOPA 2010, s 382

This guidance note describes in outline the main concepts and features of the restrictions.


The main driver for the new rules to restrict the deductibility of interest has been the Organisation for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) project which has delivered two key pieces of guidance:

  • Action 4: 2015 final report ― limiting base erosion involving interest deductions and other financial payments  published in October 2015
  • Action 4 ― 2016 update  published in December 2016

The reports make recommendations for dealing with the use of excess financial gearing to generate tax deductions in high-tax jurisdictions, the use of intra-group debt to boost tax deductions and the use of debt to generate income in low tax jurisdictions such as Luxembourg.

Development of the UK legislation


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