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HMRC internal manual

Corporate Finance Manual

Interest restriction: administration: reporting requirements: inclusion of estimates in return

TIOPA10/SCH7A/PARA27

The inclusion of estimated information in an interest restriction return may be a practical necessity where the accounting periods of a UK group company are out of alignment with the period of account of the worldwide group.

For instance, where a worldwide group’s period of account ends on 31 December 2018, but a UK subsidiary has a 30 November year-end, it will be necessary to include a share of various figures for its accounting period from 1 December 2018 to 30 November 2019, determined on a just and reasonable basis.

There is, however, a requirement to disclose the use of estimated information. TIOPA10/SCH7A/PARA27 contains a requirement that where information included in a statement (of calculations, of allocated interest restrictions or of allocated interest reactivations) is derived from estimates, this must be stated and the relevant information identified.

The reporting company may choose not to compute an amount exactly, because the amount will not affect any of the amounts required to be included in an interest restriction return. For instance, PARA21(g) does not require the amount of the adjusted net group interest expense (ANGIE) to be included in the statement of calculations where the interest allowance is determined by the fixed ratio percentage of aggregate tax-EBIDA, rather than the debt cap. If an approximate computation makes it clear that the debt cap cannot be the limiting factor, such use of an estimate does not constitute the use of estimated information in the return and no disclosure is needed. The position should be obvious from the lack of a figure for ANGIE in the return. However, if the group wishes to use excess debt cap brought forward in the subsequent year, it will need to provide a detailed computation for that year.

Further, if a return still contains estimated information thirty-six months after the end of the period of account to which the return relates, the reporting company must notify HMRC to this effect within thirty days. This notification must identify the estimated information, and indicate when the reporting company expects the information to become final. There is a £500 penalty for failure to comply with this requirement.

HMRC may treat a revised interest restriction return as having effect even when submitted after expiry of the normal time limits in PARA8(3), where the revisions are restricted to those necessary to take into account the replacement of estimates with revised figures, and HMRC is satisfied that the revisions could not have been made before expiry of the normal time limit, and the reporting company had met the notification requirement.

Where interest capacity is assumed to be the de minimis amount

In certain circumstances, a reporting company can submit a full (rather than abbreviated) interest restriction return on the cautious basis that the group’s interest capacity for a period of account is restricted to the de minimis amount of £2m per annum.  This might be the case, for example, where a group is loss-making and has aggregate tax-EBITDA for the period of zero.

The return will need to identify the UK group companies in the normal way but can include reasonable estimates, such as that each UK group company has a tax-EBITDA of zero. It will still need to allocate the ANTIE (aggregate net tax interest expense) of the group and allocate this to UK group companies, whih will require identification of companies with net tax-interest expense. If the allocation of the disallowance is on a discretionary basis (which might be more straightforward than a pro-rata basis), the companies will need to be consenting companies (CFM98570).

Guidance specifically addressing the position of charities is at CFM97600+.