Policy paper

Corporate Interest Restriction amendments

Published 15 March 2023

Who is likely to be affected

Large businesses within the charge to Corporation Tax (CT) that incur net interest expense and other financing costs (within the scope of CT) above £2 million per annum.

General description of the measure

This measure makes amendments in connection with the Corporate Interest Restriction (CIR) rules to ensure the rules work as intended.

Policy objective

The CIR restricts the ability of large businesses to reduce their taxable profits through excessive UK interest expense. It encourages alignment of the location of taxable profits with the location of economic activity, and is consistent with the UK’s more territorial approach to corporate taxation.

This measure addresses a number of issues to protect the Exchequer and reduce unfair outcomes or high administrative burdens.

Background to the measure

The CIR rules were enacted in Schedule 5 of Finance (No.2) Act 2017. Amendments were made in Finance Acts in 2018, 2019 and 2021 to address various technical issues to ensure the rules operated as intended.

When the CIR was introduced, the government committed to continue to keep the CIR rules under review. In July 2022, a working group was formed to consider proposed amendments to the CIR rules following representations from customers, tax advisers and representative bodies regarding some unfair outcomes.

Detailed proposal

Operative date

The revisions are to have effect for periods commencing on or after 1 April 2023 except for the following:

• the revisions to sections 407 and 413 of Taxation (International and Other Provisions) Act 2010 (TIOPA) in respect of non-UK corporate landlords have effect for periods of account of worldwide groups ending on or after 6 April 2020, to coincide with such companies being brought within the scope of CT
• the revisions to section 413 of TIOPA in respect of pre-trading finance costs have effect for section 330 Corporation Tax Act (CTA) 2009 elections made from Royal Assent of Finance Bill 2023
• the revisions to paragraphs 4 and 56 of Schedule 7A, TIOPA in relation to appointments of reporting companies and determinations apply from Royal Assent of Finance Bill 2023
• the revisions to the worldwide debt cap rules apply where a revised statement of allocated disallowances is submitted from 15 March 2023

Current law

The penalties rules are in Schedule 24 to Finance Act 2007.

The loan relationship rules are in Part 5 of CTA 2009.

The worldwide debt cap rules are in Part 7 of TIOPA.

The CIR rules are in Part 10 of TIOPA.

Proposed revisions

Legislation will be introduced in Spring Finance Bill 2023 to make amendments to:

• ensure that groups can carry forward interest allowance where a new holding company is inserted in the group part way through a period of account (sections 395A and 400A TIOPA)
• clarify the position that notional untaxed interest income is not included in tax-EBITDA where a group has claimed double tax relief (section 407 TIOPA)
• ensure that brought forward Income Tax losses of a non-resident corporate landlord that is now subject to CT do not reduce tax-EBITDA, consistent with the treatment of CT losses (section 407 TIOPA)
• remove a mismatch between tax-interest and group-interest with relevant non-lending relationships (money debts that are not a loan relationship) (section 411 TIOPA)
• remove a mismatch between tax-interest and group-interest where finance costs are brought into account under section 330, section 330ZA or section 607ZA of CTA 2009 by a company on the commencement of a business (section 413 TIOPA)
• amend the definition of equity notes (which limit perpetual and long-dated instruments from inflating the group ratio) to extend the term to 100 years to accommodate loans that have a term of more than 50 years (sections 414 and 415 TIOPA)
• ensure capitalised interest on assets that are appropriated from trading stock is treated appropriately where the ‘alternative calculation’ election applies (section 423 TIOPA)
• allow interest allowance (non-consolidated investment) elections to be made for interests in certain transparent entities such as limited partnerships and property unit trusts (section 429 TIOPA)
• align the deadline for making a joint public infrastructure election with the deadline for individual companies to make their public infrastructure elections (section 435)
• ensure a building under construction for use in a UK property business is not precluded from being a qualifying asset for the public infrastructure rules (section 436 TIOPA)
• allow certain finance costs payable by an infrastructure company to be deductible where they are payable to third parties via an overseas group company (section 438 TIOPA)
• clarify the circumstances in which separate CIR groups may arise under the special rules for investment managers (section 454A TIOPA)
• revise the definition of a CIR group where assets are held for sale or distribution to shareholders (section 475 TIOPA)
• extend the time limit by 12 months for HMRC to appoint a reporting company (paragraph 4(5)(a) of Schedule 7A)
• require a group to submit a revised Interest Restriction Return whenever the figures have changed (paragraph 8 of Schedule 7A) and provide the power for HMRC to issue a penalty when such a return is not submitted (paragraph 29 of Schedule 7A)
• remove the power for HMRC to issue determinations where there is no appointed reporting company (paragraph 56 of Schedule 7A TIOPA)
• remove the additional time provided to make group relief and capital allowances claims following a determination made by HMRC when a group has failed to file an Interest Restriction Return (paragraph 72 of Schedule 7A TIOPA)
• revise the meaning of insurance company so all relevant entities are within scope, following a change made to other legislation in consequence of EU Exit (part 7 of Schedule 11)
• provide that changes to CIR disallowances are ignored in calculating CT inaccuracy penalties (paragraph 5 of Schedule 24 to Finance Act 2007)
• clarify that companies which are charities cannot benefit from tax relief for financing costs incurred in respect of their tax-exempt activities and, as a result, avoid the need for these amounts to be included in CIR calculations (section 457 CTA 2009, section 382 TIOPA)
• under the worldwide debt cap rules at Part 7 of TIOPA 2010, treat a revised statement of allocated disallowances submitted within the 30-day window, for example, following the closure of an enquiry into a company tax return or litigation settlement as valid only if a valid revised statement of allocated exemptions is also submitted within that window

Summary of impacts

Exchequer impact (£m)

2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028
Negligible	Negligible	Negligible	Negligible	Negligible	Negligible

This measure is expected to have a negligible impact on the Exchequer. It supports the Exchequer in its commitment to protect revenue.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

There is expected to be no impact on individuals as this measure only affects businesses. There is expected to be no impact on family formation, stability or breakdown.

Equalities impacts

It is not expected that there will be adverse effects on any group sharing protected characteristics.

Impact on business including civil society organisations

This measure will have a negligible impact on an estimated 6,800 groups. One-off costs could include familiarisation. No continuing costs are expected.

This measure is expected to have a negligible impact on civil society organisations.

This measure is expected overall to have no impact on business’ experience of dealing with HMRC as the proposals do not significantly change any processes or administrative obligations.

Operational impact (£m) (HMRC or other)

HMRC operational costs are estimated to be approximately £0.8 million.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

There are an estimated 6,800 groups affected by CIR, mostly large businesses. HMRC will monitor queries and clearance requests made by groups, to ensure that the legislation is working as intended. HMRC also communicate regularly with advisers and representative bodies. HMRC will keep this under review for a minimum of two years.

None of the HMRC evaluation principles apply to this measure.

Further advice

If you have any questions about this change, please contact the HMRC CIR team via email: financialproductsbai@hmrc.gov.uk.