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HMRC internal manual

Corporate Finance Manual

Interest restriction: groups, periods and financial statements: the period of account: overview

TIOPA10/S480, S483, S484, S485, S486

The calculations under the fixed ratio method and the group ratio method need to be performed by reference to the worldwide group’s period of account. It is therefore necessary to establish the group’s period of account before these calculations can be undertaken.

The period of account might be obvious, for example if the group prepares financial statements. However, it is not as simple as this in all cases, and so there are also provisions for groups that do not draw up financial statements.

The period of account for the Corporate Interest Restriction can be determined by working through the steps below. If the answer to a question is sufficient to define the period of account no further steps will normally need to be considered and this is the period that should be used.

The one exception to this is where there is a change in the ultimate parent part way through the resulting period.

STEP ONE: Does the ultimate parent prepare financial statements for the group?

If the ultimate parent does draw up financial statements for the group then the period covered by these accounts is taken as the worldwide group’s period of account (s480), unless the accounts are for a period exceeding 18 months in duration or are drawn up more than 30 months after the start of the period (s487).

STEP TWO: Does the ultimate parent prepare its own financial statements?

If the ultimate parent of a multi-company group fails to draw up financial statements for the group, but does draw up financial statements for itself, then the period of account used to produce these singleton accounts is taken as the worldwide group’s period of account (s484).

Note that the ultimate parent can elect that this rule does not apply. The election is irrevocable and has effect in respect of periods ending on or after the date specified in the election. This cannot be before the date on which the election is made, although there are extended time limits in the first year of the rules. There is no prescribed form for the election. If the group has a Customer Compliance Manager (CCM), elections can be sent to them, otherwise see the CIR internet page for where to send elections.

STEP THREE: Do no such financial statements exist?

If the ultimate parent does not draw up financial statements for the worldwide group and step two does not apply, then the group can either:

  • use the default period of accounts for the accounts free period as prescribed by the rules (s485), or
  • make an election to override the default treatment and specify the period of account (s486).