The Corporate Interest Restriction (CIR) is the UK’s legislation implementing the Organisation for Economic Cooperation and Development best practice recommendations for limiting base erosion and profits shifting by means of excessive tax deduction for financing costs. The CIR rules came into effect in the UK on 1 April 2017 and, very broadly, aim to restrict UK interest deductions, in certain circumstances – potentially to 30% of ‘tax adjusted EBITDA.’ Your group will be affected if it is:
- Subject to UK Corporation Tax and;
- Has a net interest expense for Corporation Tax purposes of more than £2million
Where an accounting period straddles the 1st of April 2017 commencement date there is a deemed period of account starting on 1 April 2017 i.e. the accounting period is split from 1 January 2017 to 31 March 2017, and 1 April 2017 onwards; the latter period is subject to the CIR rules. This split should normally be on a time basis and where a period of account is less than 12 months, the Gateway amount of £2million is also pro-rated.
If you think that your group is likely to be affected by the new rules than there are two methods that can be used in order to calculate the potential disallowance that will arise:
- Fixed Ratio Method
- Group Ratio Method
AAB can advise which method will be most beneficial to your group and can also advise on ways to mitigate any tax expense that your group might suffer.
Where the restriction applies, a reporting company from the group will need to be appointed and notified to HM Revenue & Customs. The reporting company will have until at least 30 June 2017 or 12 months after the period end to submit a return. If you feel that the CIR rules will apply to you then please contact Helen Brown , or your usual AAB contact.