CFM98640 - Interest restriction: administration: UK group company: disallowances for consenting companies.
TIOPA10/S375(1) and (2), SCH7A/PARAS70, 70A
In straightforward situations, where interest restrictions arise a reporting company will submit a full interest restriction return, either the original return or a revised return. If the return states that the group is subject to interest restriction for the period of account to which it relates and the statement of allocated interest restrictions comprised in the return allocates a disallowance to a consenting company for an accounting period, that company must leave out of account tax-interest equal to that disallowance. The amount allocated to a consenting company is at the discretion of the reporting company.
Note that although the interest restriction return is for a worldwide group period of account, the restrictions allocated in the statement of allocated interest restrictions are for a relevant accounting period of the UK group company in question that falls wholly or partly within that period of account. It follows that a single accounting period may be impacted by disallowances for more than one worldwide group period of account - or even for different worldwide groups. It is also possible that there might be a disallowance and reactivation in the same accounting period. For how these situations are dealt with see CFM98200+.
Company tax return amendment procedure
At the time a company submits its company tax return, the time limit for the group to submit an interest restriction return may not have reached and the group may accordingly not have submitted the interest restriction return. In these circumstance the company can submit its company tax return with no interest restriction but must amend it later, if necessary, once an interest restriction return has been submitted.
Similarly where the company's accounting period straddles two worldwide group periods of account and an interest restriction return has been submitted for the first period, but an interest restriction return for the second is not yet due and has not been submitted, the company tax return may initially be filed taking into account only its allocated restriction for the earlier period, again subject to possible later amendment.
Where a company has submitted a company tax return and an interest restriction return has been submitted that causes information included in the tax return to be incorrect, PARA70(1A) requires to company to amend its tax return so as to correct the information.
In the first instance, where the change results from the allocation of a tax-interest restriction or a reactivation the amounts to be disallowed or reactivated follow the default rules in S377 or S380. Alternatively, the company may elect to override the default rule and substitute its own identification.
If no event supersedes the requirement to amend the return, the company must amend its company tax return by the later of:
- 3 months of the submission of the interest restriction return; and
- the normal time limit for amending a company tax return in FA98/SCH18/PARA15(4). This is usually 24 months after an accounting period, but may differ where company periods of account are long or where the notice requiring the filing of a return was served late.
Consequences of failure to amend return
If the company fails to amend its return within this time limit (and no other event, such as the submission of a revised interest restriction return, or the making of a valid election under S377 or S380, has intervened to supersede the requirement to amend the company tax return), PARA70A provides that:
- the company becomes liable to a penalty of £500. The penalty is administered in the same way as a penalty for failure to deliver an interest restriction return.
- HMRC may amend the company tax return, within a time limit of 12 months.
If the company disagrees with the HMRC amendment, it has three months in which to make its own amendment.
After this process, the company may still amend its return if, within the applicable time limits, it makes an election under S377 or S380 or a revised interest restriction return is submitted which, once more, renders its company tax return incorrect.
For the position where no interest restriction return or a non-compliant return is submitted, see CFM98654.