CFM95110 - Interest restriction: overview: introduction

What is it?

The Corporate Interest Restriction (TIOPA10/PART10 and SCH7A) was introduced in FA (No.2) 2017.

The aim of the rules is to restrict a group’s deductions for interest expense and other financing costs to an amount which is commensurate with its activities taxed in the UK, taking account how much the group borrows from third parties.

Amounts that are disallowed in one accounting period may be carried forward and may potentially be deducted in a subsequent period.

Who is affected?

The rules apply to all companies within the charge to corporation tax.

However, groups with less than £2 million of net interest expense and other financing costs per annum will not suffer any restriction. Beyond taking reasonable care to establish that this is the case, companies in such groups are not affected by the rules. They have no reporting requirements, though they can appoint a reporting company and file an Interest Restriction Return if they wish to.

When does it apply?

The rules apply to periods of account starting on or after 1 April 2017.

Periods of account straddling 1 April 2017 are treated as two notional periods. A notional period ending 31 March 2017 is subject to Part 7 of TIOPA 2010, commonly known as the World-Wide Debt Cap (WWDC). Only the notional period commencing 1 April 2017 is subject to the Corporate Interest Restriction.

What defined terms are used in the legislation?

A large number of terms are defined in the legislation. For details see the glossary of terms (CFM99500), which defines terms and links to relevant guidance.