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 work out how much UK Corporation Tax your company or group has to pay, there’s a limit (known as a Corporate Interest Restriction). This limits 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 have net interest and financing costs of 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.
If your net interest and financing costs are 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.
To reduce a future interest restriction, you can carry forward unused interest allowance for up to 5 years by appointing a reporting company and submitting an abbreviated return. To use the carried forward amount you must replace the abbreviated return with a full return for that period of account.
If your net interest and financing costs are 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 must appoint a reporting company and submit a full Corporate Interest Restriction return if you want to:
- make an election in your return, such as the group ratio method
- allocate disallowed amounts to specific companies in the group
If your company’s or group’s net interest and financing costs are not restricted, you must appoint a reporting company and submit a return if you want to:
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carry forward unused interest allowance — fill in an abbreviated or full return
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claim a reactivation of amounts you disallowed — fill in a full return
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make an election in your return, such as the group ratio method
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:
- appoint a reporting company
- elect to use the method in a Corporate Interest Restriction return
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
If your interest deductions are not restricted
You can appoint a reporting company and submit an abbreviated return. If you replace the abbreviated return with a full return for that period of account, you can carry forward unused interest allowance for up to 5 years to reduce a future interest restriction.
Appoint a reporting company
Individual companies and groups can appoint a reporting company, who can then submit a Corporate Interest Restriction return. You need to do this if you want to:
- allocate disallowed amounts to specific companies in the group
- carry forward unused interest allowance — fill in an abbreviated or full return
- claim a reactivation of amounts you disallowed — fill in a full return
- make an election in your return, such as the group ratio method
The reporting company must be:
- liable to UK Corporation Tax
- non-dormant
- authorised by the group’s non-dormant companies (which are liable for UK Corporation Tax) to be appointed as the reporting company
If your period of account ends on or before 30 March 2026, you must:
- appoint the reporting company within 12 months of the end of the first period of account — this will carry forward to future periods
- have at least 50% of the group’s non-dormant companies authorise the appointment
- submit a Corporate Interest Restriction return for every period of account — including where there is no interest restriction
If your period of account ends on or after 31 March 2026, you:
- must appoint the reporting company for each period — there’s no time limit for appointing one
- must have at least 50.01% of the group’s non-dormant companies authorise the appointment
- only need to submit a return if you’re allocating disallowed amounts to specific companies, carrying forward interest allowance, claiming a reactivation of disallowed amounts or making an election
Tell HMRC about your reporting company — periods of account ending on or before 30 March 2026
You must tell HMRC about the appointment of your reporting company either by:
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using commercial software
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completing the online form
You must also use the above methods if you need to revoke a reporting company appointment.
Using commercial software
To appoint a reporting company using commercial software, you will need a Government Gateway user ID and password. If you are an agent submitting the appointment on behalf of your client, you can use your own Gateway user ID and password.
If you do not have a user ID, you can create one when you use the service. HMRC will only accept submissions from organisations that have a Corporation Tax account with us.
Check ‘Commercial software suppliers for Corporation Tax’ for a list of commercial software suppliers for Interest Restriction Returns and reporting company appointments.
Using the online form
To appoint a reporting company:
- Fill in the template.
- Sign into the Government Gateway to complete the online form and upload the template.
To use the online service, you need a Government Gateway user ID and password. If you do not have a user ID, you can create one when you use the service.
You only need to appoint a reporting company once.
Tell HMRC about your reporting company — periods of account ending on or after 31 March 2026
You must tell HMRC about the appointment of the reporting company on the Corporate Interest Restriction return.
If you submit a return and the reporting company you told us about has not been appointed correctly, your return will be invalid and you may get a penalty.
You can appoint them correctly after you’ve submitted the return. You do not need to resubmit the return, unless the reporting company has changed.
Revoke the appointment of a reporting company
If your period of account ends on or before 30 March 2026
To change your reporting company, you’ll need to tell HMRC you want to revoke your current reporting company and appoint a new one.
Sign into the Government Gateway to complete the online form and upload the template. This needs to be authorised by at least 50% of the group’s non-dormant companies (that are liable for UK Corporation Tax).
If your period of account ends on or after 31 March 2026
You do not need to tell HMRC that you’ve revoked the appointment. You should include the new reporting company details on your next return.
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.
You must submit your Corporate Interest Restriction return electronically by either:
- using commercial software
- completing the online form
This applies to both original and revised returns.
Check ‘Commercial software suppliers for Corporation Tax’ for a list of commercial software suppliers for Interest Restriction Returns.
If you need to send us additional information, email your Customer Compliance Manager or the Large Business ‘Contact Us’ mailbox.
If you do not have a Customer Compliance Manager, you should email the additional information to msbcorporateinterest.restrictionmailbox@hmrc.gov.uk.
Make an election
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 the Large Business ‘Contact Us’ mailbox.
Or, post the details of the election to:
Corporation Tax Services
HM Revenue and Customs
BX9 1AX
You should mention Corporate Interest Restriction in your election to help HMRC direct your letter to the correct team.
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 we discover it.
If your period of account ends on or after 31 March 2026
You may be charged a £1,000 penalty if both of the following apply:
- you have not correctly appointed a reporting company when you submit your return
- HMRC contacts you about an incorrectly appointed reporting company, before you’ve corrected the mistake
Get more information
For help or more information, you can:
- find more information about Corporate Interest Restriction in HMRC’s Corporate Finance Manual
- contact your Customer Compliance Manager
- if you do not have a Customer Compliance Manager, email msbcorporateinterest.restrictionmailbox@hmrc.gov.uk — do not email returns
Updates to this page
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For periods of account ending on or after 31 March 2026 the guidance has been updated for how you appoint a reporting company, tell HMRC about the company and revoke their appointment. Guidance about a new penalty also added. If your net interest and financing costs are more than £2 million, the guidance has been updated to explain when you should file a return.
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Added Welsh translation.
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Information about who to contact if you do not have a Customer Compliance Manager has been added.
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We have added guidance on what you can do if you've missed the deadline for appointing a reporting company. We have also added guidance on what you’ll need to give us on a Corporate Interest Restriction return from 1 October 2022.
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The process on how to tell HMRC about the appointment of your reporting company and submitting a return has been updated. You must now do this electronically using commercial software or by completing our online form and template.
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Changes to the process to follow if you have missed the deadline for appointing a reporting company.
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HMRC will accept elections by email while temporary measures are in place to stop the spread of coronavirus (COVID-19).
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The timescale on when you should appoint a reporting company has been updated.
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The address to send Corporate Interest Restriction elections to has been updated.
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This guide has been updated to include more information about how to work out your company's or group's interest allowance.
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The postal address to send elections outside of the interest restriction return has changed.
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Guidance on how to submit full or abbreviated Corporate interest restriction Returns has been added.
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The Google worksheet for appointment of a reporting company has been replaced with an Excel worksheet.
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Updated with information on how to make an election outside of a return.
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This guidance has been updated to include details of how to appoint a reporting company.
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First published.