CFM95610 - Interest restriction: tax-interest: tax-interest expense and income amounts
TIOPA10/S382 and TIOPA10/S385
The tax-interest expense and income amounts are the amounts brought into account for tax which comprise amounts of interest or amounts economically equivalent to interest. These amounts are aggregated to derive the net tax-interest expense or net tax-interest income of a company for a group's period of account.
Tax-interest expense amounts
The main definition is at S382 and includes:
- Relevant loan relationship debits,
- Relevant derivative contract debits, and
- Implicit financing costs in amounts payable under a relevant arrangement or transaction.
Tax-interest income amounts
The main definition is at S385 and includes:
- Relevant loan relationship credits,
- Relevant derivative contract credits,
- Implicit financing income in amounts receivable under a relevant arrangement or transaction, and
- Consideration received for the provision of a guarantee.
Non-sterling amounts
Where a corporation tax computation includes non-sterling amounts (for example, where the company has a non-sterling functional currency), these should be translated into sterling to calculate the tax-interest amounts.
As tax-interest amounts are computed according to corporation tax rules, the translation should use the same exchange rate that is used in the corporation tax computation. This should be the rate used in accordance with CTA10/PT2/CH4.
Related guidance on calculating tax-EBITDA can be found at CFM95720. CFM98258 has guidance on translating carry forward amounts.
Specific rules
Where a company claims double tax relief in respect of a tax-interest income amount, the amount of income is reduced by the notional amount of income that is effectively sheltered from UK tax.
The following specific items are excluded from being tax-interest expense amounts:
- Interest distributions made by co-operative and community benefit societies.
- Interest distributions made by certain collective investment vehicles.
- Finance costs incurred by charities (S382(1A)) and certain payments made to charities (S459).
In addition, there are particular rules that apply for securitisation companies within the permanent regime to ensure the CIR rules operate as intended for these vehicles. The residual profit is treated as being tax-interest income amount, with an adjustment where a management fee is made to another group company.