CFM99500 - Interest restriction: glossary of terms

Introduction

This glossary is designed to give a brief description of each term and provide you with a link to the most relevant provision in the corporate interest restriction (CIR) legislation and the most relevant guidance.

Underlined terms also appear in the glossary, but are not hyperlinked. References to Corporate Finance Manual (CFM) pages are hyperlinked. The glossary also identifies the elections that may be made in applying the legislation.

There is also a collation of terms particularly relevant to carry-forward rules at CFM98220.

An index of defined expressions used in TIOPA10/PT10 can be found at TIOPA10/SCH11/PT7.

Abbreviated interest restriction return (for a worldwide group)

TIOPA10/SCH7A/PARA20, CFM98440

An abbreviated interest restriction return is an interest restriction return with more limited content, which is valid where the worldwide group is not subject to interest restrictions in the return period and where the reporting company has made an abbreviated return election. It identifies the UK group companies in the worldwide group, but does not contain a statement of calculations.

Abbreviated return election

TIOPA10/SCH7A/PARA18, CFM98460, CFM98440

A reporting company may elect to make an abbreviated interest restriction return where the worldwide group is not subject to interest restriction in the return period. The election is made within an interest restriction return for the period of account to which the election relates.

Accounting period

CTA09/CH2

This term is used in relation to UK group companies and takes its normal corporation tax meaning. Worldwide groups have periods of account.

Accounts-free period

TIOPA110/S485, S486, CFM95420, CFM95430

A period for which a worldwide group does not or is treated as not drawing up consolidated financial statements. Its periods of account are then 12-month periods starting at the beginning of the accounts free-period (“default periods of account”) - unless it makes an election under S486 to set a different date.

Adjusted net group-interest expense (of a worldwide group) - ANGIE

TIOPA10/S413, CFM95950

Adjusted net group-interest expense of the worldwide group (ANGIE) is added to any excess debt cap brought forward amount to calculate the fixed ratio debt cap. It is calculated for a worldwide group for a period of account by making certain adjustments to the net group-interest expense (NGIE) of the group for the period. Adjustments are made for capitalised interest, interest recognised as equity, amounts in respect of debt releases/modifications and dividends payable on preference shares. ANGIE is also the starting point for computing qualifying adjusted net group-interest expense (QNGIE), which is used in applying the group ratio method.

Aggregate net tax-interest expense (of a worldwide group)

TIOPA10/S390, CFM95605

The aggregate net tax-interest expense (ANTIE) of a worldwide group is fundamental to the corporate interest restriction regime and is measure of a worldwide group’s net corporation tax deduction, if any, for tax-interest. Its computation involves the aggregation of tax-interest expense amounts and tax-interest income amounts of the group’s UK group companies. Specifically, it is computed as the excess (if any) of the aggregate of the tax-interest expense amounts of the group’s “relevant companies” over the aggregate of the tax-interest income amounts of the group’s relevant companies. A relevant company is a company that is a UK group company for all or part of the worldwide group’s period of account.

A negative sum is treated as zero (and would constitute the group’s aggregate net tax-interest income).

Aggregate net tax-interest income (of a worldwide group)

TIOPA10/S390, CFM95605

The aggregate net tax-interest income of a worldwide group is the converse of aggregate net tax-interest expense and cannot be a negative number. It is computed as the excess (if any) of the aggregate of the tax-interest income amounts of the group’s relevant companies over the aggregate of the tax-interest expense amounts of the group’s relevant companies. A relevant company is a company that is a UK group company for all or part of the worldwide group’s period of account.

It is a component of interest allowance and can increase the amount available to be carried forward.

Aggregate tax-EBITDA (of a worldwide group)

TIOPA10/S405

Aggregate tax-EBITDA is a tax measure of the worldwide group’s Earnings Before Interest, Taxes, Depreciation and Amortisation. The starting point in the computation is the amounts taken into account in computing the corporation tax position of companies in the group, so a UK tax nexus is implicit.

Aggregate tax-EBITDA is used in the calculation of the interest allowance of the group for a period of account (and hence the total disallowed amount or interest reactivation cap and any interest allowance available to carry forward) under the fixed ratio method or the group ratio method. It is the sum of the amounts of tax-EBITDA of each company that was a member of the worldwide group for part or all of the period of account. Positive and negative amounts can be aggregated, but a negative total is treated as aggregate tax-EBITDA of zero.

Alternative calculation

TIOPA10/S423-S426, CFM96630

The alternative calculation provisions are applied where an interest allowance (alternative calculation) election is in effect. This election is irrevocable. Notwithstanding the name of the election, the method applies to the calculation of both group-interest and group-EBITDA. Its effect is to more closely align these amounts with UK tax rules. As it can alter the calculation of the applicable debt cap, it can be applied whether or not a group ratio election is in effect.

Application of the method can change the amounts brought into account in respect of capitalised interest, employer’s pension contributions, employee share schemes and changes in accounting policy.

Amount available for reactivation (of a company)

TIOPA10/SCH7A/PARA26, CFM98620

This amount limits the amount of previously disallowed tax-interest that a UK group company may reactivate in the period of account of a worldwide group of which it is a member for at least some of its accounting period. The limit takes account of both the tax history of the company and the worldwide group’s interest reactivation cap.

The formula is not straightforward, because it must deal with company accounting periods that may not coincide with the worldwide group’s period of account and the possibility that a company may join or leave a worldwide group during the group’s period of account. The limit is the lower of two amounts. The first is the worldwide group’s interest reactivation cap restricted on a time basis where the company is not a member of the group for its entire period of account. The second is the amount of cumulative disallowed tax-interest of the company that has not either already been reactivated in or before the company’s “specified accounting period” (or, where that accounting straddles two worldwide group periods of account, offset against amounts that would otherwise have been disallowed).

The specified accounting period is the first relevant accounting period of the company (that is straddling the worldwide group period of account) in which the company is a member of the worldwide group.

Within a worldwide group period of account, amounts must be reactivated in an earlier company accounting period before a later one.

Associate

TIOPA10/S429(5)

In the context of the definition of a non-consolidated associate, “associate” takes its accountancy meaning.

Associated

TIOPA10/S449(2) CFM97420

For the purposes of the public infrastructure provisions in Chapter 8, a company is associated with another company where the companies are members of the same worldwide group.

Associated worldwide group

TIOPA10/S428, CFM96770

This is a term used in the rules describing the non-consolidated investment provisions, which apply where an interest allowance (non-consolidated investment) election is in effect in relation to a specified non-consolidated associate. It is the worldwide group of which the specified non-consolidated associate is the ultimate parent. Note that an associated worldwide group could be a single entity - in effect a single company worldwide group.

Available (interest allowance of a worldwide group)

TIOPA10/S393, CFM98240

This is the amount of interest allowance from an earlier worldwide group period of account (the “generating period”) that is available for use (in computing the worldwide group’s interest capacity and thence its total disallowed amount or interest reactivation cap) in a later period of account (the “receiving period”) because it has neither been used nor time-expired. Detailed rules apply. See also unexpired and used interest allowance of a worldwide group.

Basic interest allowance (of a worldwide group)

TIOPA10/S396(2), CFM95220

Computation of a worldwide group’s basic interest allowance for a period is a stepping point in computing its interest allowance and thence interest capacity for the period. It does not take into account any interest allowance brought forward from earlier periods, or the de minimis amount. The amount depends on whether the fixed ratio method or group ratio method is applied.

Where the fixed ratio method applies, it is the lower of:

• 30% (the fixed ratio) of aggregate tax-EBITDA of the worldwide group; and
• the fixed ratio debt cap

Where the group ratio method applies, it is the lower of:

• the result of multiplying aggregate tax-EBITDA of the worldwide group by the group’s group ratio percentage; and
• the group ratio debt cap.

Blended group ratio election

TIOPA10/SCH7A/PARAS12(3)(b), 14, CFM98460

This is an election to apply the blended group ratio provisions. It is made in a worldwide group’s interest restriction return and can only be made where a group ratio election is in effect.

Blended group ratio provisions

TIOPA10/S401-S404, CFM96850

This is an alternative method of computing the group ratio where a number of investors holds a group (a joint venture). It cannot be made unless a shareholder is a related party investor and a member of a different worldwide group. To apply this method the group must make a blended group ratio election. The group ratio is then a weighted average of the applicable percentages for each investor group. The applicable percentage is the highest of 30% (the fixed ratio), the investee group’s group ratio calculated in the normal manner, and the investor group’s group ratio.

Consenting company

TIOPA10/SCH7A/PARAS10, 11, 1(6), CFM98570

A consenting company is a UK group company in a worldwide group, which has agreed to accept the allocation of disallowed amounts made to it in the group’s interest restriction return submitted by the reporting company.

A company becomes a consenting company if it has notified HMRC and the group’s reporting company that it wishes to be a consenting company. The company is deemed to have made a notification if it is listed as a company authorising the appointment of the reporting company and it is not stated in the list that it does not wish to be treated as a consenting company.

In either case, it may cease to be treated as a consenting company by notifying the reporting company and HMRC to this effect.

Consolidated financial statements

The term “consolidated financial statements” as used, for example, in the definition of IAS financial statements, is not specifically defined in the legislation and has the meaning it has for accountancy purposes.

Consolidated partnership

TIOPA10/S430(4)-(6), CFM96830

A consolidated partnership is a partnership whose results are consolidated in the financial statements of the ultimate parent of the worldwide group, and which does not itself have a subsidiary company. For the effects of the relevant election, see under interest allowance (consolidated partnerships) election.

Consolidated subsidiary (of another entity)

TIOPA10/S475, CFM95460

A consolidated subsidiary is a subsidiary which, applying IAS, is not fair valued through profit or loss (see fair value accounting), in other words, a subsidiary which is consolidated on a line-by-line basis. (The statutory definition works by excluding a non-consolidated subsidiary from the definition). Such a company will normally be a member of its ultimate parent’s worldwide group. Note that for the purposes of this definition it is to be assumed that all entities are subject to IAS, regardless of any consolidated financial statements that might be drawn up under other accounting standards.

De minimis amount (for a worldwide group)

TIOPA10/S392(3), CFM95220, CFM98220

The de minimis amount for a period of account is £2m per annum, adjusted on a pro rata basis for the length of the period of account. This sets a minimum value to the group’s interest capacity for the period. Consequently, groups with sufficient aggregate net tax-interest expense are able to deduct at least this amount in a period of account (except in certain cases where they include qualifying infrastructure companies that receive tax-interest income from related party qualifying infrastructure companies - see CFM97390). However, the de minimis amount is not taken into account in computing the group’s interest allowance for a period, so any excess of the de minimis amount over its aggregate net tax-interest expense is not available for carry-forward.

Debt cap

TIOPA10/S400, CFM95230, CFM95240

This is a measure based on the net external interest and similar expense (group-interest) of the worldwide group and sets a maximum limit to the worldwide group’s basic interest allowance for a period of account. Where a worldwide group applies the fixed ratio method, it is the fixed ratio debt cap that is in point, but where the group ratio method is applied, it is the group ratio debt cap that must be considered.

Defined expressions

An index of defined expressions used in TIOPA10/PT10 can be found at TIOPA10/SCH11/PT7.

Determination

TIOPA10/SCH7A/PARAS56-58, CFM98560, CFM98870

The legislation permits HMRC to make a determination on a UK group company in two quite different circumstances. The determination, made to the best of an officer’s information and belief, has the effect of restricting the company’s corporation tax deduction for tax-interest. The worldwide group’s interest restriction must be allocated on a pro-rata basis.

The first is where a reporting company is in place for a worldwide group, but it has not submitted an interest restriction return (or one that meets the requirements of the legislation) within the applicable time limit.

The second circumstance is where a closure notice has been issued in respect of an interest restriction return enquiry, but the reporting company neither has appealed nor competed the actions required by the closure notice.

Disallowance

TIOPA10/S378(1)

Disallowance is the process of applying an interest restriction. The process involves leaving tax-interest expense amounts out of account in computing a UK group company’s corporation tax position for an accounting period. This can be due to the allocation of an interest restriction in a statement of allocated interest restrictions. However, a non-consenting company may elect not to accept an amount so allocated, but instead leave out of account amounts summing to the pro-rata share, according to its own computation, see CFM98650.

The pro-rata share is also disallowed where the worldwide group is subject to an interest restriction but has not submitted a compliant interest restriction return within the applicable time limit. The company is then obliged to make the disallowance in its company tax return.

A disallowance can also arise or in consequence of a determination by an officer of Revenue and Customs.

Disallowed tax-interest amounts carried forward (by a company)

TIOPA10/S378

Where a company as the result of an interest restriction has disallowed an amount of tax-interest, the company may carry it forward and it is potentially subject to reactivation in a later accounting period. It is an attribute of that company rather than of the worldwide group of which it may be a UK group company at any particular time. There are circumstances in which the attribute may be lost, for example, where the scale of the company’s business becomes negligible, see CFM98670.

Disregarded period (of a company)

TIOPA10/S382(7), S385(8), S406(6), CFM95620, CFM95730

These are periods within a company’s accounting period that fall outside the worldwide group’s period of account, or which relate to a time during which the company was not a member of that group. In computing the company’s tax-interest amounts and tax-EBITDA, amounts are attributed to any disregarded periods on a just and reasonable basis. A disregarded period may arise on commencement where a company’s accounting period straddles 1 April 2017.

Elections

The legislation contains a number of elections that may be made and, in some cases, revoked. For detail, see the relevant guidance signposted from this glossary.

A reporting company may make the following elections within an interest restriction return:

• Abbreviated return election
• Group ratio election
• Group ratio (blended) election
• Group-EBITDA (chargeable gains) election
• Interest allowance (alternative calculation) election
• Interest allowance (consolidated partnerships) election
• Interest allowance (non-consolidated investment) election

The following elections may be included in a company tax return:

• Election by non-consenting company not to accept allocated disallowance (TIOPA10/S375(3), SCH7A/PARA69, CFM98650).
• Election by a company to override the default method for identifying items of tax-interest that are disallowed (TIOPA10/S377(3), PARA 69(5), CFM98660).
• Election by a company to override the default method for identifying items of tax-interest that are reactivated (TIOPA10/S387(3), PARA 69(5), CFM98690).
• Qualifying infrastructure company elections. A valid election must be made for a company to be treated as a qualifying infrastructure company. Further elections can be made to modify its effect in relation to groups of qualifying infrastructure companies and joint venture groups. TIOPA10/S433-435, CFM97240 to CFM97290.

The following further elections are also possible:

• Creditor loan relationships at fair value. A company may elect under TIOPA10/S456 that certain creditor loan relationships carried at fair value, but subject to hedges should be treated as if accounted for on an amortised cost basis, modified in relation to insurance activities. See CFM97525.
• Where the ultimate parent of a worldwide group does not draw up consolidated financial statements, it may make an election under S484(3), which has the effect that the ultimate parent’s single entity financial statements do not determine the worldwide group’s period of account. See CFM95480.
• Election to set an end date for period of accounts different from the default date in an accounts-free period. (TIOPA10/S486, CFM95430).

The following elections relate to commencement or transition:

• PT4/P31. This allows a UK group company to make an election which alters the application of the Disregard Regulations, SI2004/3256.
• PT4/P32.This is a transitional election relating to qualifying infrastructure elections, see CFM97250.

Eligible company

TIOPA10/SCH7A/PARAS1(7), 2(7), CFM98470

In the context of the appointment of a reporting company for a worldwide group, an eligible company is a company that was a UK group company for any part of the period of account of the worldwide group in the period in which the appointment or revocation is made and was not dormant throughout the period.

Enquiry

See “interest restriction return enquiry”.

Entity

See under “relevant entity”

Excess Debt Cap (for a worldwide group)

TIOPA10/S400(3)-(7), CFM98250

Excess debt cap can arise where a worldwide group is subject to interest restriction in a period of account (or has been in an earlier period) but the debt cap is not the limiting factor in computing a group’s basic interest allowance for a period. Excess debt cap is computed for a period of account and carries forward only to the immediately subsequent period. As the excess debt cap brought forward is a component in the computation for the debt cap for each period, the amount carried forward can be influenced by past events. Where the fixed ratio method applies in a period of account the excess debt cap is the fixed ratio debt cap for the period less 30% of aggregate tax-EBITDA. Where the group ratio method applies, it is the group ratio debt cap for the period less the group ratio percentage of aggregate tax-EBITDA. Excess debt cap carried forward from a period of account is subject to a carry-forward limit: the excess brought forward plus the total disallowed amount for the period.

Fair value accounting

TIOPA10

Fair value accounting means a basis of accounting under which assets and liabilities are measured in the company’s balance sheet at their fair value, and changes in the fair value of assets and liabilities are recognised as items of profit or loss.

Filing date

TIOPA10/SCH7A/PARA7(5), CFM98520

Where a reporting company is in place, it is required to file an interest restriction return for its worldwide group for its period of account. The filing date is the later of:

• 12 months after the end of the period of account to which the return relates; or
• 3 months after the appointment the reporting company.

Penalties apply where the return has not been submitted by the filing date - see PARA29.

Finance lease

TIOPA10/S494(1), CFM97810+

A finance lease is a lease that, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as a finance lease or loan in the accounts of the company or the financial statements of the group.

Alternatively if IFRS 16 or FRS 101 is followed, for the purposes of the CIR, a “finance lease” is also a right-of-use lease that would be treated as a finance lease if the company or group were required to distinguish between finance leases and operating leases for accounting purposes, for instance if FRS 102 were followed.

Financial Statements (of a worldwide group)

TIOPA10/S479, CFM95310, CFM95440

The financial statements of a worldwide group are normally the financial statements of the ultimate parent and its subsidiaries. However, for a single company worldwide group, they are the financial statements of that entity. These financial statements of the group are used in determining, net group-interest expense (NGIE), and thence adjusted net group-interest expense (ANGIE) and qualifying net group-interest expense (QNGIE) and group-EBITDA.

However, in applying the CIR legislation, particularly in defining the worldwide group and identifying its periods of account, the actual financial statements may be deemed to be subject to modification if they are not drawn up under IAS. See CFM95450.

Fixed ratio debt cap (for a worldwide group)

TIOPA10/S400(1)

The Fixed Ratio Debt Cap for a worldwide group’s period of account is the sum of the adjusted net group-interest expense (ANGIE) and any excess debt cap brought forward from the previous period. It is applied in computing the group’s basic interest allowance for a period of account and thence its interest allowance and interest capacity.

Fixed ratio method

TIOPA10/S397, CFM95230

The Fixed Ratio Method is the default method for the calculation of the basic interest allowance of a worldwide group for a period of account and applies unless a group ratio election is made. Under this method, the basic interest allowance is the lower of two amounts. The first is 30% (the fixed ratio) of the group’s aggregate tax-EBITDA. The second amount is the fixed ratio debt cap.

Full interest restriction return (for a worldwide group)

TIOPA10/SCH7A/PARA18, CFM98430

A full interest restriction return is required where, a reporting company is in place for a worldwide group and the group is subject to interest restriction for a period of account. A full interest restriction return is also required where the group is able to and wishes to reactivate amounts that have been disallowed in an earlier period, or to carry forward unused interest allowance from that, or an earlier, period. Like an abbreviated interest restriction return, a full return identifies the companies that were UK group companies for all or part of the period of account. In addition, it states whether interest restrictions or reactivations apply, includes a statement of calculations required under the legislation and, as applicable, a statement of allocation of interest restrictions or a statement of allocation of interest reactivations.

Group

A reference in this guidance or the actual legislation to a “group” should be taken as a reference to a worldwide group, unless the context requires otherwise. In the definition of a worldwide group, the starting point is the group as it would be applying IAS.

Group-EBITDA

TIOPA10

Group-EBITDA is based on an accounting measure of the group’s profit before tax, increased by its net group-interest expense (NGIE), and adjustments for depreciation and amortisation. It is used in computing the group ratio percentage where a group ratio election has been made.

Group-EBITDA (chargeable gains) election

TIOPA10/SCH7A/PARA15/S422, CFM96460, CFM98460

Groups may make an irrevocable chargeable gains election to make certain prescribed adjustments to the accounting figures, to more closely align them to how amounts of interest and EBITDA would be calculated under UK tax rules. This election has effect only for the group ratio method.

Group-interest

Group-interest, as opposed to tax-interest, is an accounting measure of interest or interest like expense or income and is computed for the worldwide group as a whole. Three measures of group-interest are defined in the legislation, net group-interest expense (NGIE), aggregate net group-interest (ANGIE) and qualifying net group-interest expense (QNGIE).

The amounts taken into account are based amounts that are or would be reflected in a worldwide group’s consolidated financial statements and so will normally only reflect the effects of transactions with parties external to the group. Unlike in the case of tax-interest, no territorial nexus with the UK is required.

Group ratio (blended) election

TIOPA10/SCH7A/PARAS12(3)(b), 14, CFM98460

A reporting company may elect on behalf of the worldwide group where a group ratio election is in effect for the group ratio method to include the blended group ratio provisions.

Group ratio debt cap (for a worldwide group)

TIOPA10/S400(2), CFM95240

The group ratio debt cap is the sum of the qualifying net group-interest expense (QNGIE) of a worldwide group for a period of account and any excess debt cap brought forward from the previous period. It is applied in computing the group’s basic interest allowance for a period of account and thence its interest allowance and interest capacity.

Group ratio election

TIOPA10/SCH7A/PARAS12(3)(a), 13, CFM98460

A reporting company may elect on behalf of the worldwide group that the group ratio method should be used to compute the group’s basic interest allowance.

Group ratio method

TIOPA10/S398, CFM95240

The group ratio method is an alternative way of calculating the basic interest allowance and is used instead of the fixed ratio method where the reporting company of a worldwide group has made a group ratio election for a period of account. Applying this method, the group’s basic interest allowance is the lower of two amounts. The first is the group’s aggregate tax-EBITDA multiplied by the group ratio percentage. The second amount is the group ratio debt cap.

Group ratio percentage (for a worldwide group)

TIOPA10/S399, CFM95240

The group ratio percentage is used to calculate the basic interest allowance of a worldwide group for a period of account under the group ratio method. It is the qualifying net group-interest expense (QNGIE) for the group divided by the group-EBITDA for the group expressed as a percentage. The percentage is capped at 100%.

IAS

CTA10/S1127(5), CFM95470

International Accounting Standards (IAS) are defined by reference to Regulation (EC) 1606/2002 of the European Parliament and the Council of 19 July 2002. These are International Financial Reporting Standards as adopted by the EU. Where the EU has adopted a standard with modifications, use of either the original or the modified standard is treated, for the purposes of corporation tax, as conforming to IAS.

Note that consolidated financial statements drawn up in accordance with certain other accounting standards may be acceptable for computing group-interest or group-EBITDA, but not in defining membership of the group.

IAS Financial Statements

TIOPA10/S488

The IAS financial statements of a worldwide group are financial statements of the worldwide group’s ultimate parent and its subsidiaries, drawn up for a period in accordance with International Accounting Standards.

Impairment loss

TIOPA10/S391, S383(3)9(b), S411(1)(c)(ii) CFM95630 CFM95930

An impairment loss is an excluded debit and therefore not taken into account as a tax-interest expense amount of a company. It is also excluded from the computation of net group-interest expense (NGIE). It is defined, for the purposes of the corporate interest restriction legislation, as a loss in respect of impairment of a financial asset, but does not include an amount recognised under fair value accounting. The terms, “impairment” and “financial asset” are not specifically defined and take the normal accountancy meaning.

As a result, this will include debit amounts related to:

• a reduction in the asset’s value;
• a reduction in the asset’s value to zero (asset remains on balance sheet); or
• the derecognition of the asset (asset removed from balance sheet).

Interest allowance (of a worldwide group for a period of account)

TIOPA10/S396(1)

The interest allowance of a worldwide group for a period of account is its basic interest allowance plus its aggregate net tax-interest income for the period, if any. In most cases, a group will have an aggregate tax-interest expense, so its aggregate net tax-interest income will be zero. Interest allowance is a stepping-stone in computing the group’s interest capacity.

In a period with aggregate net tax-interest income the group has no net tax-interest expense to restrict, so the augmentation of basic interest allowance by aggregate net tax-interest income is only relevant to computing interest allowance available to carry forward.

Interest allowance (alternative calculation) election

TIOPA10/SCH7A/PARAS12(3)(d), 16, CFM98460

A reporting company can make an election in an interest restriction return that a worldwide group should apply alternative calculation provisions when calculating group-interest and group-EBITDA. The effect of these provisions is to bring the amounts used when calculating these figures in line with UK tax principles for a number of areas. The election has effect in the period of account in which it is made and is irrevocable.

Interest allowance (consolidated partnerships) election

TIOPA10/S430, SCH7A/PARAS12(3)(f), 18, CFM98460 ,CFM96820

A reporting company can make an interest allowance (consolidated partnerships) election in the interest restriction return for a worldwide groupfor a period of account. It changes the calculation of group-interest and group-EBITDA in relation to amounts relating to consolidated partnerships. The election must identify the partnership or partnerships to which it relates. It applies to the period of account and is revocable.

The effect of the election is that amounts disclosed in the consolidated financial statements of the worldwide group in respect of the consolidated partnership are disregarded and amounts are substituted as if the equity method had been applied in respect of the partnership interest. “Equity method” takes its accounting meaning and as a result of a proportional share of the group-interest and group-EBITDA amounts relating to the partnership is taken into account.

Interest allowance (non-consolidated investment) election

TIOPA10/SCH7A/PARAS12(e), 17

A reporting company can make an interest allowance (non-consolidated investment) election in the interest restriction return for a worldwide group for a period of account. The election specifies one or more non-consolidated associates of a group to which the non-consolidated investment provisions are to apply for that period. It is revocable.

Interest capacity (of a worldwide group)

TIOPA10/S392, CFM95220

The interest capacity of a worldwide group in a period of account is the interest allowance for the current period of account, plus the aggregate of the interest allowances for earlier periods, as far as they are available in the current period. However, if this is less than the de minimis amount for the period, the interest capacity is the de minimis amount.

CFM98240 deals with the rules determining the availability of interest allowance from earlier periods.

Interest reactivation cap (of a worldwide group)

TIOPA10/S373(3), (4)

The interest reactivation cap is the excess, if any, of a worldwide group’s interest allowance for a period of account over its aggregate net tax-interest expense. Subject to detailed rules operating at company level (see CFM98620), previously disallowed tax-interest of UK group companies up to this amount may be reactivated. Note that this is not the exact converse of the total disallowed amount, because it applies by reference to the interest allowance rather than the interest capacity for the period of account. As a result, you do not take the de minimis amount into account.

Interest restriction return

TIOPA10/SCH7A/PARA18

Where either the group or HMRC has appointed a reporting company to act on behalf of the worldwide group, the reporting company is required to submit an interest restriction return. A full interest restriction return is required where, interest restrictions are due for a period, the group wishes to reactivate amounts that have been disallowed in an earlier period, or the group wishes to carry forward unused interest from that or an earlier period. If not, the group may elect to submit an abbreviated interest restriction return.

Interest restriction return enquiry

TIOPA10/SCH7A/PARAS40-55, CFM98720

The CIR provisions contain their own bespoke enquiry regime, with some similarities to the provisions for enquiries into a company tax return. An enquiry can be opened into an interest restriction return. Such an enquiry is distinct and separate from an enquiry into a company’s tax return and the opening of such an enquiry does not have the effect of opening an enquiry into the company tax returns for the relevant accounting periods of UK group companies. The scope of such an enquiry is restricted to the return and immediately relevant matters.

The group’s reporting company is required to handle the enquiry. The provisions allow for issue of a closure notice that requires the reporting company to take steps including amending the interest restriction return. There are mechanics for dealing with misidentified groups and periods of account and to permit and require changes to be made to the company tax returns of UK group companies, notwithstanding time limits that might otherwise have applied. Consequential claims may be possible.

International accounting standards

See under IAS.

Member (of a worldwide group)

TIOPA10/S473(4)(a), CFM95350

An (accounting) entity is a member of a worldwide group if it is a relevant entity and is either its ultimate parent or a consolidated subsidiary of the ultimate parent.

Note that for the purposes of considering whether an entity is a consolidated subsidiary, it is to be assumed that all entities are subject to IAS, regardless of any consolidated financial statements that might be drawn up under other accounting standards (S475(4)). Therefore, it is IAS, rather than the accounting standards actually used that are relevant to defining the group and thence the ultimate parent and membership of a worldwide group.

Multi-company worldwide group

TIOPA10/S473(4)(d), CFM95330

A multi-company worldwide group is a worldwide group with two or more members.

Net group-interest expense of a worldwide group

TIOPA10/S410, CFM95920

Net group-interest expense (NGIE) is an accounting measure of a worldwide group’s interest net interest and similar expense for a period of account. It is defined as the sum of the relevant expense amounts less the sum of the relevant income amounts for a period of account. In nature, these amounts correspond broadly to tax-interest. The measurement is by reference to amounts recognised in the financial statements of the group for the period of account as items of profit or loss.

NGIE is the starting point in the calculation of adjusted net group-interest expense (ANGIE) and thence qualifying net group-interest expense (QNGIE). It is added back to the group’s profit before tax as part of the calculation of group-EBITDA.

Net tax-interest expense (of a company)

TIOPA10/S389, CFM95605

The net tax interest expense of a company for a period of account, if any, is the sum of its tax-interest expense amounts less the sum of its tax-interest income amounts. Note that the computation of these amounts excludes amounts relating to disregarded periods. The net tax interest expense cannot be a negative number; a negative amount would be the company’s net tax-interest income. As these amounts are amounts that are, or would be, taken into account for corporation tax, only a UK group company can have net tax-interest expense. It is taken into account in computing a worldwide group’s aggregate tax-interest expense or aggregate tax-interest income for a period of account.

Net tax-interest income (of a company)

TIOPA10/S389, CFM95605

The definition of the net tax-interest income of a company for a period of account is the converse of the definition of a company’s net tax interest expense. Accordingly, it is the sum of its tax-interest income amounts less the sum of its tax-interest expense amounts. It cannot be a negative number and it is taken into account in computing a worldwide group’s aggregate tax-interest expense or aggregate tax-interest income for a period of account.

Non-consenting company

TIOPA10/SCH7A/PARA10/S375(3), CFM98570, CFM98650

A non-consenting company is a member of a worldwide group that does not give its agreement (or withdraws agreement) to be bound by the allocation of interest restrictions made to it in the interest restriction return. It can be treated as a non-consenting company if it is not included on the list of companies that authorise the appointment of the reporting company, if is specified as a non-consenting company on that list, or if it has notified the reporting company and HMRC that it no longer wishes to be treated as a consenting company.

A reporting company is not entitled to allocate more than a pro-rata share of the worldwide group’s total disallowed amount to a non-consenting company.

Furthermore, a non-consenting company may elect not to accept the amount allocated by a reporting company and instead substitute its own calculation of its pro-rata share of the total disallowed amount of the group (or possibly some other group of which it considers itself to be a member). This election has no effect on any other members of the reporting company’s group.

Non-consolidated associate

TIOPA10/S429, CFM96770

Relevant, in particular, to the interest allowance (non-consolidated investment) election, a non-consolidated associate is an (accounting) entity that meets one of three conditions:

• it is a joint venture or associate that is accounted for in the financial statements of the worldwide group for a period of account as a joint venture or an associate using the equity or gross method of accounting;
• it is a partnership in relation to which the worldwide group’s reporting company has made an interest allowance (consolidated partnership) election; or

it is a non-consolidated subsidiary of the ultimate parent for the period.

For the purposes of this definition, “associate”, “equity method”, “gross equity method” and “joint venture” all take their accountancy meaning.

Non-consolidated investment provisions

TIOPA10/S427, CFM96760

The non-consolidated investment provisions are special rules where the reporting company of a worldwide group has made an interest allowance (non-consolidated investment) election in relation to a non-consolidated associate for a period of account.

The rules apply in computing both group-interest and group-EBITDA. In essence the rules require amounts in the actual financial statements of the electing worldwide group relating to transactions between that group and the associated worldwide group (which may be a single entity) to be disregarded. Amounts included in the actual financial statements of the electing worldwide group relating to group-income or group EBITDA of the associated worldwide group are left out of account, but a proportionate share of the amounts derived from the associated worldwide group’s financial statements are included.

Non-consolidated subsidiary of an entity

TIOPA10/S475, CFM95350

A non-consolidated subsidiary of another entity is a company that is its subsidiary for accounting purposes, but is treated as an investment measured at fair value (and not consolidated on a line-by-line basis). A non-consolidated subsidiary will not be a member of the worldwide group of which its (accounting) parent is the ultimate parent. However, it may be a non-consolidated associate specified in an interest allowance (non-consolidated investment) election.

Period of account (of a worldwide group)

TIOPA10/S480-S485, CFM95400

The period of account of a worldwide group, for corporate interest restriction purposes, is normally the period in respect of which the ultimate parent of the worldwide group draws up consolidated financial statements.

There are specific provisions for more complicated cases such as where statements are not drawn up or the statements prepared are not acceptable, for instance where there is an accounts-free period. In such circumstances a group may be able to elect set aside default rules and select a date to which financial statements are treated as having been drawn up.

Pro-rata share (company, of total disallowed amount)

TIOPA10/SCH7A/PARAS23, 24, CFM98590

Pro-rata shares are relevant in limiting the interest restriction the reporting company of a worldwide group may allocate to a UK group company in its statement of allocated restrictions for a worldwide group period of account. Determinations by HMRC will also use pro-rata shares.

The pro-rata share is a share of a worldwide group’s total disallowed amount for a period of account, proportional to a UK group company’s share of the aggregate total of the tax interest expense amounts of the UK group companies. Note that, for this purpose, a company with a tax-interest income amount is treated as having net tax-interest expense of zero and not a negative amount and therefore, the total of the tax-interest expense amounts may be a higher figure than the group’s aggregate net tax-interest expense.

A further rule works out the pro-rata shares for a company’s relevant accounting periods, if necessary.

Public infrastructure asset

TIOPA10/S436(2), CFM97110

The concept of a public infrastructure asset is fundamental to the public infrastructure provisions (TIOPA10/PT10/CH8) and underlies the definitions of qualifying infrastructure activity.

An asset is (or is not) a public infrastructure asset in respect of each company according to conditions relative to that company.

The two classes of public infrastructure asset are:

• tangible assets forming part of the infrastructure of the UK (or the UK sector of the continental shelf) which meet a public benefit test; and
• buildings (or parts of buildings) that are part of a UK property business and are let or sub-let on a short-term basis to unrelated parties.

In either case, the asset must have an expected economic life of at least 10 years and be reflected in the balance sheet of a UK group company that is fully taxed in the UK.

Public infrastructure assets test

TIOPA10/S433(5), CFM97210

To be a qualifying infrastructure company a company must pass the public infrastructure asset test, which requires all but an insignificant proportion of the assets recognised on its balance sheet to be public infrastructure assets. These are:

tangible assets related to qualifying infrastructure activities carried on by it or an associated qualifying infrastructure company;

service concession arrangements in respect of such assets;

financial assets to which a company is party for the purposes of qualifying infrastructure activities that it or another associated qualifying infrastructure company carries on;

shares in a qualifying infrastructure company; or

loan relationships etc. to which the only other party is a qualifying infrastructure company.

Public infrastructure income test

TIOPA10/S433(2), CFM97200

To be a qualifying infrastructure company a company must pass the public infrastructure income test, which requires all but an insignificant proportion of its income for an accounting period to be derived from the following sources:

• qualifying infrastructure activities carried on by it;
• shares in a qualifying infrastructure company; or
• loan relationships etc. to which the only other party is a qualifying infrastructure company.

Public infrastructure provisions

TIOPA10/PT10/CH8 (S432-S449), CFM97100

The public infrastructure provisions define a qualifying infrastructure company and related terms and provide for a special regime to apply to such companies. Where a company makes a valid election to be a qualifying infrastructure company, certain amounts are excluded from being tax-interest expenses of the company. In addition, some other amounts are to be ignored or treated as nil in calculating other figures for the corporate interest restriction. The public infrastructure provisions provide an alternative method of restricting interest expense that does not relate to assets and activity that are taxable in the UK.

Qualifying infrastructure activity

TIOPA10/S436(1), CFM97120

For a company to be a qualifying infrastructure company, its business must be limited to qualifying infrastructure activities and/or investing in or financing other qualifying infrastructure companies. The concept of a qualifying infrastructure activity underlies the public infrastructure income test and public infrastructure assets test. Qualifying infrastructure activities are:

• the provision of a public infrastructure asset; or
• the carrying on of any other activity that is ancillary to, or facilitates, the provision of a public infrastructure asset.

The definition of public infrastructure asset imposes the requirement that the infrastructure in question is recognised on the balance sheet of a UK group company that is fully taxed in the UK.

Qualifying infrastructure company

TIOPA10/S433, CFM97110

To be a qualifying infrastructure company

• the company must be fully taxed in the UK;
• all, or all but an insignificant proportion, of its income and assets are referable to activities in relation to public infrastructure assets; and
• it must have elected into the provisions of Chapter 8 of the Corporate Interest Restriction rules.

Qualifying infrastructure company elections

TIOPA10/S433(1)(d), S434, S435, S444-S446, CFM97240, CFM97260, CFM96910

The public infrastructure provisions include a number of elections.

Qualifying infrastructure company election. To be treated as a qualifying infrastructure company, a company must have made a valid election to this effect within the time limit. See CFM97240. Time limits are relaxed on commencement of the CIR regime (CFM97250). An election has effect for subsequent periods. It can be revoked, but the revocation cannot take effect before 5 years have elapsed. A further 5 years must elapse before a fresh election can take effect. Special rules apply to transfers of business within a group.

The effect of such an election can be modified by a group infrastructure election (CFM97260) made jointly by two or more members of a worldwide group.

There are special rules applying to joint venture companies, which can be extended by a joint venture election to certain groups headed by joint venture companies. See CFM96920.

Qualifying net group-interest expense (of a worldwide group) - QNGIE

TIOPA10/S414, CFM95900

The qualifying net group-interest expense (QNGIE), of a worldwide group for a period of account, is used as the denominator in the calculation of the group ratio percentage for the group ratio method. In addition, it is added to any excess debt cap brought forward amount to calculate the group ratio debt cap. It is calculated for a worldwide group for a period of account by making certain further “downwards adjustments” to the adjusted net group-interest expense (ANGIE) of the group for the period. One of the effects of these adjustments is to exclude certain related party expense. QNGIE will always be less than, or the same as, ANGIE.

Reactivation

This is the process by which previously disallowed tax-interest expense amounts of a company may become deductible in computing the company’s corporation tax position in a later accounting period. Detailed rules apply; see also interest reactivation cap and subject to interest reactivations.

Related party

TIOPA10/S462 - S472, CFM96200

The corporate interest restriction provisions contain extensive provisions defining a related party for the purposes of the provisions, or parts thereof, and the consequence of related party status. In essence, a person is a related party of another person where

• they are part of the same consolidated group;
• there is common participation in the management, control or capital of the parties; or
• the 25% investment condition is met in relation to them.

A 25% investment refers to an investment in equity, which entitles the holder to acquire 25% or more of

• the voting power,
• the disposal proceeds,
• income distributions or
• the assets in the event of a winding-up.

Related party investor

TIOPA10/S404

The concept of a related party investor is particularly relevant to the group ratio (blended) election in applying the group ratio method. In this context, an entity is considered to be an “investor” where it has an interest in the ultimate parent of a worldwide group, entitling it to a proportion of the profits or losses of the group. If it is also a related party, it will be a related party investor.

Relevant accounting period (of a company)

TIOPA10/S490, CFM98635

An accounting period of a company that falls wholly or partly within the period of account of the worldwide group.

Relevant company

This is term is used in the corporate interest restriction provisions but has no generally applicable definition. Instead, it is defined in the particular provision in which it is used. See also UK group company.

Relevant derivative contracts credit, or debit

TIOPA10/S384, S387, CT09/PT7, CFM95650

These are derivative contracts debits and credits that are taken into account in computing tax-interest amounts. In essence, the relevant amounts are restricted to those with an interest-like economic character.

Relevant entity

TIOPA10/S474, CFM95340

An (accounting) entity can only be the ultimate parent or a member of a worldwide group, if it is a relevant entity. Entity is not a defined term either in the legislation or under IAS. In essence, it is an organisation, whether or not a legal person, for which financial statements might be drawn up. To be a relevant entity, it must be a company defined for Corporation Tax at CTA10/S1121, or a listed entity of which no participator has more than 10% by value. Sovereign powers are excluded.

Relevant loan relationships credit, or debit

TIOPA10/S383, S386, CT09/PT5, CFM95630

These are loan relationship debits and credits that are taken into account in computing tax-interest amounts. Notable exclusions relate to impairment and foreign exchange differences.

Reporting company (for a worldwide group)

TIOPA10/SCH7A/PARAS1-5, CFM98470

A reporting company is a UK group company appointed on behalf of the worldwide group to deal with the interest restriction regime on behalf of the group. This includes the submission of interest restriction returns and dealing with an interest restriction retu\rn enquiry, should there be one. Any member of the group, subject to procedural rules and a time limit, may appoint the reporting company. Such an appointment rolls on into subsequent periods unless revoked. Where no reporting company is appointed within the time limit, HMRC may appoint a reporting company for an accounting period; such an appointment does not roll over. Exceptionally, HMRC may replace a reporting company.

Revised interest restriction return

TIOPA10/SCH7A/PARA8, CFM98530

A reporting company may submit a revised interest restriction return for a worldwide group for a period of account that replaces and supersedes any interest restriction return previously submitted. Time limits apply which normally permit a revised return to be submitted up to 36 months after the end of a period of account. This is extended to 60 months where no interest restrictions apply in the period, to allow unused interest allowance for a period to be accessed before it time-expires. Amendments may be made to company tax returns to give effect to a revised interest restriction return even where the normal time limit for such amendments has passed.

Service concession agreement

TIOPA10/S494

A service concession arrangement is mainly relevant to the public infrastructure rules. It is defined under IAS as an arrangement whereby a government or other public sector body contracts with a private operator to develop (or upgrade), operate and maintain the grantor’s infrastructure assets. For example, roads, bridges, tunnels, airports, energy distribution networks, prisons or hospitals.

Single-company worldwide group

TIOPA10/S473(4)(c), CFM95330

A single-company worldwide group is a group whose only member is its ultimate parent.

Statement of allocated interest reactivations

TIOPA10/SCH7A/PARA25, CFM98610

This is a statement forming part of a full interest restriction return, which allocates the worldwide group’s interest reactivation cap, if any, between UK group companies. If the group does not appoint a reporting company that submits a full interest restriction return including such a statement, its members cannot benefit from interest reactivations.

Statement of allocated interest restrictions

TIOPA10/SCH7A/PARA22, CFM98580

This statement must be included in a full interest restriction return where a worldwide group is subject to interest restriction. It allocates the total disallowed amount for the group between UK group companies. Non-consenting companies may not be allocated more than a pro-rata share.

Statement of Calculations

TIOPA10/SCH7A/PARA21, CFM98450

The statement of calculations, which must be included in a full interest restriction return, is a statement setting out specified company and group-level amounts that are taken into account in computing a worldwide group’s total disallowed amount or its interest reactivation cap, if any.

Subject to interest reactivations (worldwide group)

TIOPA10/S373(5)

A worldwide group is subject to interest reactivations in a period of account if its interest reactivation cap is not zero and at least one member of the group has previously disallowed tax-interest amounts available for reactivation.

Subject to interest restriction (worldwide group)

TIOPA10/S373(1)

A worldwide group is subject to interest restriction in a period of account if its aggregate net tax-interest expense exceeds its interest capacity. The amount of the excess is referred to as the total disallowed amount.

Tax-EBITDA (of a company)

TIOPA10/S406-S409, CFM95700

The tax-EBITDA of a company (which may be a negative amount) is its profits or losses for corporation tax purposes, after excluding:

• tax-interest expense amounts and tax-interest income amounts;
• capital allowances and charges;
• certain debits and credits under the intangible fixed assets code;
• losses brought forward or back from a different accounting period, and group relief to the extent it derives from a fellow worldwide group member; and
• certain specified reliefs, including R&D reliefs, and charitable donations relief.

Tax-EBITDA is further adjusted for certain amounts relating to long funding operating leases and short finance leases, in order to align the tax-EBITDA calculation with that of tax-interest amounts.

Tax-interest

TIOPA10/S382-S391, CFM95600

Tax-interest is income or expense falling within the definition of a tax-interest income amount or tax-interest expense amount of a company. In essence, such items are interest or have a similar economic nature to interest. It is the fundamental subject matter of the Corporate Interest Restriction provisions, for which a corporation tax deduction may be denied, at UK group company level, by the corporate interest restriction provisions. Amounts that are disallowed are subject to possible future reactivation.

Tax-interest is measured by UK tax-rules and is an amount that is taken in to account in computing amounts chargeable to corporation tax.

Tax-interest expense amounts (of a company)

TIOPA10/S382, CFM95600

Tax-interest expense amounts for a company are sums brought into account for the purposes of corporation tax in the relevant accounting period in respect of interest expense or matters of a similar economic nature, as defined in the legislation. In particular, they can include a relevant loan relationship debit, or a relevant derivative contract debit, or another financing cost implicit in amounts payable under a relevant arrangement (for example, finance leases, debt factoring and service concession arrangements).

Tax-interest income amounts (of a company)

TIOPA10/S385, CFM95600

Tax-interest income amounts of a company are sums brought into account for the purposes of corporation tax in the relevant accounting period in respect of interest income or matters of a similar economic nature, as defined in the legislation. In particular, they can include a relevant loan relationship credit, or a relevant derivative contract credit, or a financing cost implicit in amounts receivable under a relevant arrangement (for example, finance leases, debt factoring, service concession arrangements).

Total disallowed amount (for a worldwide group)

TIOPA10/S373(2), CFM95220

This is the overall restriction to a worldwide group’s corporation tax deductions for a period of account. This is the excess, if any, of the group’s aggregate net tax-interest expense over its interest capacity.

UK group company

TIOPA10/S492

At any point in time, a UK group company is a member of the worldwide group that is within the charge to Corporation Tax. . A UK-incorporated company will not be in the charge to corporation tax where it has been inactive since incorporation or is accepted by HMRC as dormant and nothing has happened to bring it into the charge to corporation tax. In some contexts, reference is made to a relevant company, which is a UK group company that is a member of worldwide group for at least part of the period of account in question.

Ultimate parent (of the worldwide group)

TIOPA10/S473(4)(b), CFM95335

An ultimate parent is a member of an IAS group, which is a relevant entity and which is not a consolidated subsidiary of any other relevant entity.

Note that for the purposes of considering whether an entity is consolidated subsidiary, it is to be assumed that all entities are subject to IAS, regardless of any consolidated financial statements that might be drawn up under other accounting standards (S475(4)). Therefore, it is IAS, rather than the accounting standards actually used that is relevant to defining the group and thence the ultimate parent and membership of a worldwide group.

Unexpired (interest allowance of a worldwide group)

TIOPA10/S395, CFM98240

Interest allowance of a worldwide group for a period of account (“the originating period”) is unexpired in a later period of account (the “receiving period”) if it has not ceased to be available by operation of the five-year rule. For detail, see CFM98240. See also available interest allowance of a worldwide group.

Used (interest allowance of a worldwide group)

TIOPA10/S394, CFM98240

The legislation defines when interest allowance is used in either the period of account in which it originates or a later period. It is used by offsetting against aggregate net tax-interest expense of the worldwide group to reduce the total disallowed amount (which may be to zero) or to reactivate previously disallowed tax-interest expense. See also available interest allowance of a worldwide group.

Worldwide group

TIOPA10/S473, CFM95320

A worldwide group takes its meaning from international accounting standards(IAS), subject to certain non-consolidation conditions. It is comprised of the ultimate parent and its consolidated subsidiaries. The controlling entity must meet either of the non-consolidation conditions as follows:

• the controlling entity is a member of an IAS group but not a consolidated subsidiary of a relevant entity which itself meets the first condition
• the controlling entity is not a member of an IAS group.

Note also that to be the ultimate parent or a member of the worldwide group, an entity must be a relevant entity. Therefore, the (accounting) parent that actually draws up the financial statements may be an entity that is not a relevant entity and therefore ineligible to be the ultimate parent. Furthermore, the position under IAS must be considered; actual consolidated financial statements drawn up under other GAAP will not determine the composition of the worldwide group if IAS would consolidate different entities.