CFM98600 - Interest restriction: administration: reporting requirements: allocation pro-rata to accounting periods

TIOPA10/SCH7A/PARA24

Where a UK group company is allocated a pro-rata amount of interest restriction for a period of account and it does not have a single accounting period that coincides with the period of account of the worldwide group, it is necessary to allocate that pro-rata allocation between its relevant accounting periods.

A relevant accounting period is defined in TIOPA10/S471 as an accounting period that falls wholly or partly within the period of account of a worldwide group.

As in the case of the allocation of the total disallowed amount between companies, the allocation of a company’s pro-rata amount between accounting periods by TIOPA10/SCH7A/PARA24 is determined by an A x B/C formula, but with different definitions of A, B and C as follows:

  • Amount A is the company’s pro rata share of the worldwide group’s total disallowed amount for the period of account (the return period).
  • Amount B is the net tax-interest expense of the company for the period of account
  • Amount C is the sum of the net tax-interest expense amounts for each relevant accounting period.

Where there is net tax-interest income, that is treated as tax-interest expense of zero and the net tax-income is not taken into account in the apportionment.

A company’s relevant accounting period may straddle more than one period of account of the group. Only the net tax-interest expense attributable to the part overlapping the return period is taken into account. Tax-interest income and expense amounts for the entire accounting period will have been split between the parts of that period that overlap different periods of account, by leaving out of account amounts that fall in disregarded periods, determined on a just and reasonable basis by reference to disregarded periods (TIOPA10/S382(6) - (8)).