UK Updates Guidance On Restriction On Corporation Tax Relief For Interest Deductions

The UK guidance on restriction on corporation tax relief for interest deductions has been updated to include more information about how to work out a company’s or group’s interest allowance on 17 September 2018.

Corporate Interest Restriction

UK corporate interest restriction (CIR) is the limit to the amount of tax relief taxpayers can get for deducting net interest and other financing costs when calculating UK corporate tax, which only applies to individual companies or groups of companies that will deduct over £2 million in a 12-month period. Taxpayers being restricted should appoint a reporting company who takes the responsibility to submit a CIR return.

Different Scenario

If the interest deduction is less than £2 million, there is no need to submit a CIR return, but documents must be kept that show deduction is less than £2 million in net interest and financing costs in that period of account. Taxpayers can appoint a reporting company to submit an abbreviated return. In that case, unused interest allowance can be carried forward for up to 5 years to reduce a future interest restriction, by replacing that abbreviated return with a full return for that period of account.

If the interest deduction is more than £2 million, taxpayer must work out the company’s or group’s ‘interest allowance’ which is the maximum amount of net interest and financing costs that can be deducted in a period of account. The guidance gives details on the usage of the ‘fixed ratio method’ and the ‘group ratio method’ to calculate the largest allowance and the company or group must keep records of the calculation. In this scenario, normally a reporting company should be appointed within 6 months of the end of the period of account, then submit a full Corporate Interest Restriction return.

Source: UK Government

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