CFM98654 - Interest restriction: administration: UK group company: disallowances where no compliant interest restriction return

TIOPA10/S376, SCH7A/PARA69

Although it is envisaged that nearly all worldwide groups likely to be impacted by the corporate interest restriction (CIR) will appoint a reporting company, it is possible that in some cases companies may be subject to a CIR disallowance where there is no reporting company or where no compliant interest restriction return (IRR) is submitted.

These companies will still need to disallow tax-interest amounts where appropriate. The fundamental rules are in TIOPA10/S376. This section comes into play where a worldwide group is subject to a CIR disallowance. It applies to any company that was a UK group company for all or part of a worldwide group’s period of account.

If the group is not subject to a CIR disallowance, and no IRR is submitted by the group, the UK group company has no obligation to make reference to CIR in its company tax return. This would apply to members of a group or a stand-alone company where the aggregate net tax-interest expense (S390) of the worldwide group (which may be a stand-alone company) does not exceed the de minimis amount of £2m per annum (s392(3)).

S376 does not come into play until the “relevant date” has passed. If a group has no reporting company, the relevant date is 12 months after the end of the period of account of the worldwide group (which does not necessarily coincide with the company’s accounting period). If the appointment of a reporting company has effect, the relevant date is the filing date for an (original) IRR, which is the later of 12 months from the end of the period of account or 3 months after the appointment of the reporting company.

Then, for S376 to apply one of three conditions must apply:

  • No appointment of a reporting company has effect for the period;
  • The appointment of a reporting company has effect, but no IRR has been submitted; or
  • The appointment of a reporting company has effect and an IRR has been submitted, but the IRR does not comply with the fundamental requirements set out in TIOPA10/SCH7A/PARA20(3), for instance, by containing incorrect figures.

It should be rare for S376 to come into play because an IRR that has been submitted is non-compliant. An IRR is not rendered non-compliant by containing estimates so long as these are identified in the IRR as required by PARA27(2).

If a reporting company becomes aware of an error in an IRR, it can submit a revised IRR within the time limit allowed. This is likely to prove much more efficient than having all the UK group companies subject to a CIR disallowance apply S376 and will enable the reporting company to make a discretionary allocation of the CIR disallowance to consenting companies.

The effect of S376 applying is that the UK group company must leave out of account its pro-rata share of the worldwide group’s CIR disallowance for the accounting period - if not nil. If it has already submitted a company tax return, it must amend it, within 3 months of the relevant date - PARA69(3) and (4). The company must also amend its company tax return to give effect to the election within the same time limit. If it fails to do so it becomes liable to a penalty of £500 and the procedure described at CFM98640 applies (PARA70A). The penalty is administered in the same way as a penalty for failure to deliver an IRR.

The computation of pro-rata shares of the CIR disallowance by company and by accounting period is dealt with in SCH7A/PARAS23 and 24, CFM98590 and CFM98600. For identification of amounts left out of account see CFM98660.