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HMRC internal manual

Corporate Finance Manual

Interest restriction: administration: reporting requirements: appointment by HMRC

TIOPA10/SCH7A/PARA4

TIOPA10/SCH7A/PARA4 allows HMRC to appoint a reporting company for a period of account of a worldwide group. This may not be done when an appointment by the group has effect, whether in the period of account for which the reporting company was appointed or a later period where that appointment continues to have effect. The appointment cannot be made within the time limit for appointment by the group. It follows that, in practice an appointment by HMRC is most likely to be made more than 6 months after the end of a period account for which there is no valid appointment.

The company appointed must be a UK group company for at least part of the period of account and must not be dormant.

It is possible that HMRC will be uncertain what the correct period of account is. Accordingly the appointment can be made by reference to a date or dates that would begin, end or be contained within a period of account. This might happen if an enquiry into a company tax return revealed that it was a member of a group that might be subject to interest restriction, but at that time the composition of the group and the identity of the ultimate period and the period to which it drew up accounts was uncertain. HMRC could then appoint the company under enquiry as reporting company for its worldwide group, thereby requiring it to submit an interest restriction return for the group under PARA7.

An appointment by HMRC is valid only for the period of account to which it relates; unlike an appointment by the group, it does not carry forward to later periods. So, the group is free to make its own appointment for a later period.

An appointment by HMRC may be made at any time up to 36 months after the end of the period of account. A later appointment is permitted where an amount in a company tax return is still capable of being altered - see FA98/SCH18/PARA88. This is most likely to be the case where there is an open enquiry into a company tax return.

HMRC may also appoint a reporting company where new groups are identified in the course of an enquiry.

Many groups may not be subject to interest restriction. This may because the group is small enough that its aggregate net tax-interest expense falls below the de minimis limit of £2m per annum, or because tax-EBITA and net group-interest expense are sufficiently high, in relation to aggregate net tax-interest expense that no restriction arises. HMRC does not intend to appoint reporting companies on a routine or speculative basis, simply because a group appears not to have done so itself.