CFM98470 - Interest restriction: administration: reporting requirements: appointment of a reporting company by group: TIOPA10/SCH7A/PARAS1-3

TIOPA10/SCH7A/PARAS1-3

Valid appointments

In most cases where the corporate interest restriction (CIR) may be applicable, a group will choose to appoint a reporting company. TIOPA10/SCH7A/PARA1 provides the mechanism for making an appointment.

The appointment must be made in the twelve months immediately following the end of the period of account (PARA1(4)).

Only an eligible company may be appointed as a group reporting company. This is a company that is not dormant and was a UK group company (a group member subject to UK corporation tax) for at least part of the return period. Any member of the group including, say, a non-UK ultimate parent, is permitted to make the appointment. However, to be effective, the appointment must be authorised by at least 50% of the eligible companies (PARA1(5)).

Provided that an eligible UK company has been appointed by at least 50% of the eligible companies, the appointment will be valid, even if the wrong company has been identified as the ultimate parent in the appointment. In such a situation, the reporting company will still be required to submit an interest restriction return.

Consenting and non-consenting companies

An individual submitting an interest restriction return may bind members of the group (albeit subject to safeguards described below) and therefore must have the necessary authority from the group members which are supporting the appointment of the reporting company.

It is a matter for the group to determine whether a particular individual already has authority to do this or whether the individual needs to be explicitly given this authority.

For example, the group finance director, head of tax, or members of the tax team within a group may already have the authority to act on behalf of companies in the group in certain respects. Depending on the terms of this authority, this may be sufficient such that the individual can authorise the appointment of the reporting company on behalf of the UK group company in question. In these circumstances, the individual could submit a single document listing the companies that are authorising the appointment. By signing and submitting the document, the individual represents to HMRC that they have the necessary authority. If the group has effective protocols for electronic ‘signatures’, a hard copy document should not be necessary.

On the other hand, for example, where there are significant minority interests in subsidiaries, no one individual has the existing authority to give the authority on behalf of all the UK group companies. In such circumstances, a more formal approach may be appropriate to ensure that there is an individual who has explicit authority to bind each company. Or, possibly, a document with more than one signatory may be apposite. What internal process is acceptable is a matter for the group and the officers of any subsidiaries in question to determine.

The appointment notice may be accompanied by a statement setting out which (if any) of the companies signing the statement do not wish to be treated as consenting companies and therefore do not consent to discretionary allocations of interest restrictions by the reporting company.

Single entity worldwide group

It is possible for a worldwide group to consist of a single entity: a single company worldwide group, S473(4)(c). If such a company is subject to a CIR disallowance, it could simply include the disallowance in its company tax return. But it may be advantageous for a single company that is likely to have a CIR disallowance to appoint itself as reporting company and submit an interest restriction return. This would enable it to benefit from reactivations of previously restricted tax-interest and to access unused interest allowance in a later period, processes that require the submission of a full interest restriction return.

Rollover of appointments

Once an appointment is made for a period of account of the worldwide group, the appointment continues to be effective in later period of accounts unless the company is no longer eligible, or the group revokes the appointment under PARA2, or HMRC appoints a replacement under PARA4.

Where a group with a reporting company in place takes over another group which also has a reporting company, the appointment of the reporting company of the group that has been taken over should be revoked. This should ensure that no late filing penalties are issued in respect of the group that is taken over, and that therefore no longer exists.

Revoking an appointment

The procedure for revoking an appointment, in PARA2, is similar to that for an appointment. The revocation is by notice to HMRC and can be made by any member of the group. It must be authorised by at least 50% of the eligible companies in the group. Notice must be given no later than twelve months after the end of the period of account. The revocation has effect for the period to which it relates and all future periods.

In practice, it is likely that an appointment will be revoked to have effect in a period of account later than one in which the original appointment was made. The revocation can be accompanied by the appointment of a different eligible company as reporting company.

Once twelve months have elapsed after the end of a period of account, the group cannot revoke the appointment for that period and the reporting company will remain responsible for any later revisions to the interest restriction return for that period.