Guidance

Restriction on Corporation Tax relief for interest deductions

Check if your company’s or group’s interest deductions for Corporation Tax will be restricted, and if you need to send a Corporate Interest Restriction return.

When you calculate how much UK Corporation Tax your company or group has to pay, there’s a limit (known as a Corporate Interest Restriction) to the amount of tax relief you can get for deducting net interest and other financing costs.

This Corporate Interest Restriction only applies to individual companies or groups of companies that will deduct over £2 million in a 12-month period.

If your company’s or group’s net interest and financing costs are restricted, you should appoint a reporting company within 6 months of the end of the period of account. The reporting company must then submit a Corporate Interest Restriction return.

If you’ll deduct less than £2 million

Your company or group does not need to submit a Corporate Interest Restriction return. However, you must keep documents that show that your company or group will not deduct more than £2 million in net interest and financing costs in that period of account.

You can appoint a reporting company, which must then submit an abbreviated return. If you do, you can carry forward unused interest allowance for up to 5 years to reduce a future interest restriction, by replacing that abbreviated return with a full return for that period of account.

If you’ll deduct more than £2 million

You must work out your company’s or group’s ‘interest allowance’. This is the maximum amount of net interest and financing costs your company or group can deduct in a period of account.

You can use the ‘fixed ratio method’ or the ‘group ratio method’. Use the method that gives you the largest allowance.

You must keep records of your calculation.

If your company’s or group’s net interest and financing costs are restricted, you’ll need to appoint a reporting company within 6 months of the end of the period of account, then submit a full Corporate Interest Restriction return.

Fixed ratio method

Using the fixed ratio method, the interest allowance is the lower of:

  • 30% of the company’s or group’s UK taxable profits before interest, taxes, capital allowances and some other tax reliefs
  • the company’s or group’s worldwide net interest expense

Group ratio method

To use this method, you must:

Using the group ratio method, the interest allowance is the lower of:

  • the ratio of the company’s or group’s worldwide net interest expense owed to unrelated parties, to the company’s or group’s overall profit before tax, interest, depreciation and amortisation multiplied by the company’s or group’s taxable UK profits before interest and capital allowances
  • the company’s or group’s worldwide net interest expense owed to unrelated parties

Find more detailed guidance on how to calculate your company’s or group’s interest allowance.

If your interest deductions are not restricted

You can appoint a reporting company, which must then submit an abbreviated return. If you do, you can carry forward unused interest allowance for up to 5 years to reduce a future interest restriction, by replacing that abbreviated return with a full return for that period of account.

Appoint a reporting company

Individual companies and groups can appoint a reporting company. Your reporting company will be responsible for submitting your company’s or group’s Corporate Interest Restriction return. The reporting company must be:

  • liable to UK Corporation Tax
  • non-dormant
  • authorised by at least 50% of the group’s non-dormant companies (which are liable for UK Corporation Tax) to be appointed as the reporting company

When you have appointed a reporting company, you must submit a Corporate Interest Restriction return for every period of account, including when there’s no interest restriction. If you revoke the appointment of a reporting company and do not have an interest restriction, you will not have to submit a return.

If you do not appoint a reporting company, HMRC might appoint one for you.

Tell HMRC about the appointment of your reporting company

To appoint a reporting company:

  1. Fill in the template.
  2. Complete the online form and upload the template.

Template for the appointment of a reporting company

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Complete the online form and upload the template. You’ll need a Government Gateway user ID and password.

You only need to appoint a reporting company once.

To change your reporting company, you’ll need to tell HMRC you want to revoke your current reporting company and appoint a new one. This needs to be authorised by at least 50% of the group’s non-dormant companies (that are liable for UK Corporation Tax).

Submit a return

Your reporting company must submit a return within 12 months of the end of the reporting period the return is for.

Find out how to submit a full or abbreviated Corporate Interest Restriction return.

Elections

Elections let you choose a particular way of having your company’s or group’s tax treated, like choosing to use the group ratio method to work out your interest allowance. You should make elections in a Corporate Interest Restriction return.

If you need to make an election, but cannot do it in a return, send the details of the election to your Customer Compliance Manager.

Or, post the details of the election to:

Customer Engagement Team
WMBC
Euston Tower
286 Euston Road
London
NW1 3UQ

Penalties

If your company or group does not submit a Corporate Interest Restriction return when it should, it might have to pay a fixed penalty of:

  • £500 if the return is up to 3 months late
  • £1,000 if the return is more than 3 months late

If you submit an inaccurate Corporate Interest Restriction return, your company or group might have to pay a penalty of up to 100% of the extra tax (or lower tax relief) owed in the corrected return.

The amount of penalty you’ll have to pay will depend on the type of error and when you told HMRC about it. The penalty might be less if you tell HMRC about your error before they discover it.

Get help or more information

For help or more information, you can:

Published 21 December 2017
Last updated 17 September 2018 + show all updates
  1. This guide has been updated to include more information about how to work out your company's or group's interest allowance.
  2. The postal address to send elections outside of the interest restriction return has changed.
  3. Guidance on how to submit full or abbreviated Corporate interest restriction Returns has been added.
  4. The Google worksheet for appointment of a reporting company has been replaced with an Excel worksheet.
  5. Updated with information on how to make an election outside of a return.
  6. This guidance has been updated to include details of how to appoint a reporting company.
  7. First published.