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Corporate Interest Restriction (CIR) – What You Need to Know

Staying informed about regulatory taxation changes and mechanisms is paramount. One such aspect is Corporate Interest Restriction (CIR). So, what exactly is CIR, and what actions do you need to take as a business owner?

28 Sep 2023

By Clair Dart

Understanding Corporate Interest Restriction (CIR)

Corporate Interest Restriction (CIR) is essentially a set of rules and reporting procedures to HMRC that places a limit on the amount of interest a company can deduct from its taxable income when calculating its tax liability. In essence, it aims to control the tax relief companies can claim on their interest expenses.

As interest rates continue to fluctuate, it’s expected that many more companies will come under the purview of CIR. This shift means that CIR is no longer the exclusive concern of large corporations; it now affects smaller and medium-sized entities as well. Consequently, it’s becoming increasingly crucial for businesses of all sizes to understand how CIR applies to them.

Calculating the Interest Allowance

The key question is: How do you calculate the interest allowance available under CIR? There are three methods to consider, and you can choose the highest of these three values. Any net interest expense exceeding this amount will be disallowed on your company’s tax return. These methods are:

  • De Minimis £2 Million: If your group’s net interest expense falls below £2 million, it might seem like there’s nothing to worry about. But should you do nothing?
  • Fixed Ratio – 30% of Tax EBITDA: This method calculates the interest allowance as a percentage of your taxable earnings as adjusted for a number of items including interest, tax reliefs and depreciation.
  • Group Ratio (Considering the EBITDA of the Whole Group): This method takes into account the EBITDA of the entire group.

Do You Need to Act if Your Interest Expense is Less Than £2 Million?

The assumption that there’s no need to take any action if your group’s interest expenses are below the de minimis limit of £2 million might seem tempting. However, it’s essential to evaluate this decision carefully.

Firstly, it’s wise to maintain accurate records, even if your group falls below the threshold. These records can be invaluable in demonstrating compliance with CIR rules if requested.

Moreover, it’s advisable to assess any potential additional interest expenses within your group. Doing so ensures you fulfil your compliance responsibilities and take full advantage of available allowances.

Consider the Benefits of Filing an Abbreviated Return

Groups that fall below the £2 million de minimis threshold are not obligated to appoint a reporting company responsible for filing an interest restriction return. However, you should consider whether it’s beneficial to file an abbreviated return in such cases.

If your group doesn’t utilise its allowed interest deductions entirely due to CIR rules, the unused allowances can be carried forward. This means you can save those deductions and apply them to reduce your taxable income in future years, for up to five years. This alone justifies the effort to submit abbreviated reports, especially when you anticipate an increase in interest expenses.

Get in Touch for Guidance

In conclusion, navigating the complexities of CIR can be challenging. If you’re uncertain about whether your company or group requires a CIR return or if it would be beneficial, we’re here to help. Don’t hesitate to contact me for a discussion tailored to your specific situation.

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