CFM98540 - Interest restriction: administration: reporting requirements: inclusion of estimates in return

TIOPA10/SCH7A/PARA27

The inclusion of estimated information in an interest restriction return (IRR) may be a practical necessity where the accounting periods of a UK group company are out of alignment with the period of account of the worldwide group.

For instance, where a worldwide group’s period of account ends on 31 December 2018, but a UK subsidiary has a 30 November year-end, it will be necessary to include a share of various figures for its accounting period from 1 December 2018 to 30 November 2019, determined on a just and reasonable basis.

There is, however, a requirement to disclose the use of estimated information. TIOPA10/SCH7A/PARA27 contains a requirement that where information included in a statement (of calculations, of allocated interest restrictions or of allocated interest reactivations) is derived from estimates, this must be stated and the relevant information identified.

The reporting company may choose not to compute an amount exactly, because the amount will not affect any of the amounts required to be included in an IRR. For instance, where the interest allowance is determined by the fixed ratio percentage of aggregate tax-EBITDA, rather than the debt cap. If an approximate computation makes it clear that the debt cap cannot be the limiting factor, the group may estimate the figure of ANGIE in the IRR. However, if the group wishes to use excess debt cap brought forward in the subsequent year, it will need to provide a detailed computation for that year.

If an IRR still contains estimated information 36 months after the end of the period of account to which the IRR relates, the reporting company must notify HMRC to this effect within 30 days beginning with the end of that 36-month period. This notification must identify the estimated information, and indicate when the reporting company expects the information to become final. There is a £500 penalty for failure to comply with this requirement.

Where a group has estimated the figure of ANGIE, because it has no effect on the interest allowance, this should be disclosed in the IRR. The reporting company may, in the IRR, disclose to HMRC that they do not intend to provide a final figure as it does not affect the calculation. This will fulfil the obligation to notify HMRC and so no penalty will be due.

Where, for example, a group has estimated ANGIE in year 1, but in year 4 wishes to use excess debt cap brought forward, there is no need to submit a revised IRR for year 1. It will be sufficient to provide HMRC with the full calculations for year 1 in the information supporting the year 4 IRR.

HMRC may treat a revised IRR as having effect even when submitted after expiry of the normal time limits in PARA8(3), where the revisions are restricted to those necessary to take into account the replacement of estimates with revised figures, and HMRC is satisfied that the revisions could not have been made before expiry of the normal time limit, and the reporting company had met the notification requirement.

Where interest capacity is assumed to be the de minimis amount

In certain circumstances, a reporting company can submit a full (rather than abbreviated) IRR on the cautious basis that the group’s interest capacity for a period of account is restricted to the de minimis amount of £2m per annum. This might be the case, for example, where a group is loss-making and has aggregate tax-EBITDA of zero for the period.

The IRR will need to identify the UK group companies in the normal way but can include reasonable estimates, such as that each UK group company has a tax-EBITDA of zero. It will still need to allocate the ANTIE (aggregate net tax interest expense) of the group and allocate this to UK group companies, which will require identification of companies with net tax-interest expense. If the allocation of the disallowance is on a discretionary basis (which might be more straightforward than a pro-rata basis), the companies will need to be consenting companies (CFM98570).