CH82293 - Penalties for Inaccuracies: Calculating the penalty: Potential lost revenue Corporate Interest Restriction: Examples of reduced disallowances
This guidance applies to returns which are relevant returns for a corporate
interest restriction (CIR) period beginning on or after 1 April 2023.
For relevant returns for periods before this date, HMRC staff should seek advice from the specialist technical team, see CH910000.
Example 1
A, B and C are in a CIR group.
Their returned results are:
| Company | Profits | CIR allocation |
|---|---|---|
| Company A | £50,000 | CIR disallowed amount £30,000 |
| Company B | £75,000 | CIR disallowed amount £20,000 |
| Company C | £60,000 | CIR disallowed amount £nil |
| - | - | Total disallowed amount £50,000 |
Company A’s company
tax return is found to contain a careless inaccuracy which is put right to
produce a true taxable profit of £85,000 rather than £50,000.
As a result of this change, the group is required to submit a revised interest restriction return (IRR), reducing the total CIR disallowed amount to £45,000.
In the revised IRR, Company A reduces its CIR disallowed amount by £25,000, from £30,000 to £5,000, and Company B increases its CIR disallowance by £20,000 from £20,000 to £40,000.
For the purposes of calculating the potential lost revenue (PLR) in Company A, only the proportion of the reduction in the total disallowed amount that was originally allocated to Company A may be taken into account.
Here, the original allocation was three-fifths to Company A, and two- fifths to Company B. Therefore, in calculating the PLR for Company A, only three-fifths of the total reduction of £5,000 (£50,000 - £45,000) can be taken into account.
PLR calculation:
Enquiry adjustment £35,000 (£85,000 less £50,000)
CIR reduction (£3,000) (three-fifths of £5,000)
Additional profits for PLR £32,000
Example 2
A, B and C are a group of companies.
Their returned results are:
Company A’s company
tax return is found to contain a careless inaccuracy which is put right to
produce a true taxable profit of £85,000.
| Company | Profits | CIR allocation |
|---|---|---|
| Company A | £50,000 | CIR disallowed amount £50,000 |
| Company B | £75,000 | CIR disallowed amount £nil |
| Company C | £60,000 | CIR disallowed amount £nil |
| - | - | Total disallowed amount £50,000 |
As a result of this change, the group is required to submit a revised IRR, reducing the total CIR disallowed amount from £50,000 to £45,000. In the revised IRR, Company A reduces its CIR disallowed amount by £5,000, from £50,000 to £45,000.
For the purposes of calculating the PLR in Company A, only the proportion of the reduction in the total disallowed amount that was originally allocated to Company A may be taken into account.
Here, the original allocation of the CIR disallowance was all to Company A. Therefore, in calculating the PLR for Company A, the entire total reduction of £5,000 can be taken into account.
PLR calculation:
Enquiry adjustment £35,000 (£85,000 less £50,000)
CIR reduction (£5,000) (the full reduction)
Additional profits for PLR £30,000