Technical amendments to the Corporate Interest Restriction for Corporation Tax
Published 21 July 2020
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This publication is available at https://www.gov.uk/government/publications/technical-amendments-to-the-corporate-interest-restriction-for-corporation-tax/technical-amendments-to-the-corporate-interest-restriction-for-corporation-tax
Who is likely to be affected
Large businesses within the charge to Corporation Tax which incur net interest expense and other financing costs (within the scope of Corporation Tax) above £2 million per annum.
General description of the measure
This measure makes technical amendments to the Corporate Interest Restriction to make sure the regime works as intended.
Policy objective
The Corporate Interest Restriction restricts the ability of large businesses to reduce their taxable profits through excessive UK interest expense. It encourages alignment of the location of taxable profits with the location of economic activity, and is consistent with the UK’s more territorial approach to Corporation Tax.
Background to the measure
Corporate Interest Restriction was enacted in Schedule 5 of Finance (No.2) Act 2017. A tax information and impact note for the Corporate Interest Restriction was published on 5 December 2016 which provides further details of the background to the regime.
Technical amendments to Corporate Interest Restriction were made within Finance Act 2018 and Finance Act 2019. Two further technical amendments have now been identified that are necessary for the regime to work as intended.
Detailed proposal
Operative date
The first proposed revision will have effect from 21 July. The second proposed revision will be treated as having effect from 1 April 2017 when the Corporate Interest Restriction rules commenced.
Current law
The Corporate Interest Restriction rules are at Part 10 of Taxation (International and Other Provisions) Act 2010.
Proposed revisions
Legislation will be introduced in Finance Bill 2020 – 21 to make technical amendments to ensure the rules operate as intended. The amendments will:
- clarify the way special provisions in the Corporate Interest Restriction rules apply in the context of a Real Estate Investment Trust, to take into account that UK property businesses of non-resident companies are now within the charge to Corporation Tax rather than Income Tax (section 452)
- make sure that no penalties arise for the late filing of an Interest Restriction Return if there is a reasonable excuse for the failure, bringing the administrative rules in line with those for Corporation Tax Self-Assessment (Schedule 7A)
Summary of impacts
Exchequer impact (£ million)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| nil | nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact. This measure supports the Exchequer in its commitment to protect revenue.
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 as it only affects businesses. There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
There is no direct impact on businesses as this measure amends legislation to enable the UK Corporation Tax regime to operate as originally intended. Customer experience is expected to remain broadly the same as there is no change to how businesses interact with HMRC. There is expected to be no impact on civil society organisations.
Operational impact (£ million) (HMRC or other)
Our analysis is currently confirming that this measure carries no operational impact.
Guidance contained within the Corporate Finance Manual will be updated.
Other impacts
Other impacts have been considered and none has been identified.
Monitoring and evaluation
The measure will be kept under review through regular communication with affected taxpayer groups.
Further advice
If you have any questions about this change, contact Adeline Chan on 03000 586039 or email: adeline.chan@hmrc.gov.uk.