Corporate Interest Deduction restrictions for groups

HMRC has just finalised its corporate interest restriction guidance on how groups should deal with the new regime which limits the deductibility of interest for groups with total interest in excess of £2m.

The full corporate interest restriction guidance was updated in February 2018 to make it clearer and to reflect the expected changes in the 2017/18 Finance Bill which was completing its final parliamentary stages at the time the updated guidance was published.

The rules are complex but broadly look to restrict UK interest deductions for a group’s net interest expense (above a £2m de minimis) to the lower of:

  • 30% of the UK tax EBITDA; and
  • A measure of the worldwide group’s net external finance expense.

A “group ratio” election can also be made which may give a better result to the extent the worldwide group is more leveraged than the UK sub-group. 

The new restriction applies from 1 April 2017 irrespective of the accounting year end.

ICAEW will shortly publish a detailed guide to the new regime. This will be followed by a webinar on 30 May with Anton Hume, international  tax partner at BDO, setting out the main features of the new regime.