CFM98580 - Interest restriction: administration: reporting requirements: statements of allocated interest restrictions

TIOPA10/SCH7A/PARA22

Where a reporting company concludes that the total disallowed amount (TIOPA10/S373(2) for the worldwide group is more than zero, a statement of allocated interest restrictions must be attached to the return (TIOPA10/SCH7A/PARA22).

Contents of the statement of allocation

In the statement of allocated interest restrictions, the reporting company must:

  • list one or more companies that were UK group companies at some time during the period and which had net tax-interest expense;
  • specify the disallowance of tax-interest allocated to each;

and, in cases where company accounting periods do not align with the worldwide group’s period of account,

  • specify the amounts allocated to each relevant accounting period (company accounting period overlapping or contained within the worldwide group period of account, see S471); and
  • show the total amount so allocated.

PARA20(5A) provides that HMRC may, by notice, specify further information that should be included in an interest restriction return, and accordingly the specified information may relate to the statement of allocated interest restrictions.

General rules about allocations

The amount allocated to a UK group company for a worldwide group period of account is referred to as the company’s allocated disallowance for the return period (PARA22(2)). This may be further split between company accounting periods under PARA22(5), as above. The amount allocated to a company accounting period is a company’s allocated disallowance for its accounting period (PARA22(6)).

PARA18(4) requires the sum of the allocated disallowances to equal the total disallowed amount (S373(2)).

The allocated disallowance of a company for a return period (the worldwide group period of account for which the return is submitted) may not be a negative amount, and must not exceed the net tax-interest of the company for the period (S389). This figure will be included in the statement of calculations which forms part of the interest restriction return.

The allocated disallowance of a company for a relevant accounting period may not be a negative amount, and must not exceed the net tax-interest of the company for the return period that is referable to the accounting period. The sum of the amounts allocated to a company’s relevant accounting periods for a period of account must equal the company’s allocated disallowance for the return period.

Special rules relating to non-consenting companies

Further rules apply in relation to allocations to a non-consenting company which limit the amount of the group’s total disallowed amount that can be allocated to a non-consenting company. The purpose of these limits is to prevent a disproportionate allocation of disallowance to a non-consenting company. Such an allocation might work unfairly to the detriment of a minority stakeholder in the non-consenting company.

To this end, the allocated disallowance of a non-consenting company for the return period may not exceed its pro-rata share of the group’s total disallowed amount (in accordance with PARA22(3)(b)). For the computation of the pro-rata share see CFM98590. There are rules to determine the allocation of this pro-rata share between relevant accounting periods.

It is open to a non-consenting company to elect (under S375(3)) that it does not accept the allocated disallowance. It must then submit or amend its company tax return for each relevant period of account to include its own computation of the disallowance due, on a pro-rata basis. Such an election has no effect on the position of the other members of the group; they are still required to submit or amend company tax returns for relevant accounting periods in accordance with the reporting company’s statement of allocation.

If the non-consenting company’s calculation of the total group disallowance is different to the reporting company’s calculation of the total group disallowance, HMRC may wish to enquire into why this is the case.

Identification of disallowed amounts

There is a default order in which different classes of tax-interest are disallowed in a company’s tax return. The company can elect to override this default order of disallowance (TIOPA10/S377).

Estimated information

Where information in a statement of allocation is based on estimated figures, it is necessary to state this and identify the information concerned (CFM98540).