Policy paper

Corporation Tax: amendments to the corporate interest restriction rules

Published 22 November 2017

Who is likely to be affected

Large businesses within the charge to Corporation Tax (CT) which incur net interest expense and other financing costs (within the scope of CT) above £2 million per annum.

General description of the measure

This measure makes technical amendments to the Corporate Interest Restriction (CIR) rules to ensure the regime works as intended.

Policy objective

The CIR rules restrict the ability of large businesses to reduce their taxable profits through excessive UK interest expense. They are part of the government’s wider changes to encourage alignment of the location of taxable profits with the location of economic activity, and are consistent with the UK’s more territorial approach to corporate taxation.

Background to the measure

The CIR rules were enacted in Schedule 5 of Finance (No.2) Act 2017. A tax information and impact note for the CIR rules was published on 5 December 2016 which provides further details of the background to the regime.

As a result of further engagement with affected businesses, certain technical amendments to the legislation have been identified that are necessary for the regime to work as intended.

Detailed proposal

Operative date

Some of these amendments are treated as having effect from 1 April 2017 when the CIR rules commenced. The remainder of the amendments have effect from 1 January 2018.

Current law

The CIR rules are at Part 10 of Taxation (International and Other Provisions) Act 2010.

Proposed revisions

Legislation will be introduced in Finance Bill 2017-18 and Finance Bill 2018-19 to make technical amendments to ensure the rules operate as intended. Amendments will be made to:

• the rules about relevant derivative contract debits and credits to ensure that derivatives hedging a financial trade that is not a banking business are not inappropriately excluded from the rules (sections 384, 387, 411 and 412)
• the calculation of group-earnings before interest, tax, depreciation and amortisation (EBITDA), to align the treatment of Research and Development (R&D) Expenditure Credits with the approach taken in the calculation of tax-EBITDA (section 416)
• the infrastructure rules, to ensure that insignificant amounts of non-taxable income do not affect their operation (sections 433 and 436)
• the infrastructure rules, so that the time limit for making an election to be a qualifying infrastructure company is changed to the last day of the accounting period where the election first applies (section 434)
• the infrastructure rules, so that a third party which acquires an asset from a qualifying infrastructure company (QIC) is not automatically treated as making an election to be a QIC (section 434)
• the infrastructure rules, so that the limitation on relief for related party interest cannot be avoided by using a conduit company to provide the finance (section 443)
• the definition of a group, to align it with accounting standards and to ensure that asset managers do not cause otherwise unrelated businesses to be grouped together (section 475)
• the administrative rules, so that when an interest restriction return is submitted, companies will be required to amend their company tax returns if their tax position is changed (paragraph 70 of schedule 7A)

Summary of impacts

Exchequer impact (£m)

2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023
nil	nil	nil	nil	nil	nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure has no impact on individuals or households as it only affects businesses.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

This measure is not expected to impact on any of the groups with protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on the 3,800 affected large businesses, who may incur a one-off cost to familiarise themselves with the amendments to the CIR rules. On-going costs are expected to be negligible. Some businesses may find that the limitation on using the de minimis and the infrastructure rules may mean additional work to comply with the rules. However, some businesses may find that aligning the definition of group with their organisational structure will make applying the rules easier for them.

There is no impact on civil society organisations.

Operational impact (£m) HM Revenue and Customs (HMRC) or other

The additional costs / savings for HMRC in implementing the proposed revisions set out in this measure are anticipated to be negligible. There are additional costs for HMRC to deliver the original administrative aspects of the CIR rules as announced following Autumn Statement 2016 and these are anticipated to be approximately £900,000.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored to ensure the legislation is operating as intended and kept under review through regular communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please email interest-restriction.mailbox@hmrc.gsi.gov.uk.