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Corporate Interest Restriction (CIR) – why file an abbreviated return?

Companies or groups could be missing out - we explain why

17 May 2024

I previously outlined the requirements under CIR for single companies and groups with a net interest expense exceeding £2 million.

There seems to be a reluctance by companies or groups to file an abbreviated CIR return when a full return is not compulsory, and they could be missing out. Not doing so could have significant financial consequences for your business and therefore we explore further why an abbreviated return may be beneficial.

Crystalise unused allowances

An abbreviated return can be filed where no CIR requirement exists, i.e. the group’s net interest expense is below the de minimis threshold of £2 million. The abbreviated return is very basic with a few details about the company or group.

For up to 5 years, an abbreviated return can be replaced by a full CIR return, which would then calculate the unused allowances, and these can then be carried forward to be used in later years.

Worked example:-

Let’s consider a property investment company. They have the following net interest expenses in their first 5 years:-

Year 1 – £500,000

Year 2 – £1 million

Year 3 – £1.25 million

Year 4 – £1.5 million

Year 5 – 1.9 million

As you can see, comparing each of these to the de minimis of £2 million in each year shows allowances that have not been used. £1.5 million in year 1, £1 million in year 2, £0.75 million in year 3, £500,000 in year 4 and £100,000 in year 5. A total of £3.85 million of unused allowances.

Let’s assume in year 6, they buy another property, fully financed, increasing their net interest expense to £3 million. They can then replace the last 5 years with full CIR returns, to crystalise those unused allowances so that for year 6, they have not only the £2 million de minimis but also up to £3.85 million brought forward allowances. Therefore, enabling tax relief in year 6 on the full £3 million.

If they hadn’t filed abbreviated returns and had waited until year 6 when they were required to consider CIR, they would have suffered a disallowance of £1 million, and missed out on tax relief at 25%, costing them £250,000.

Good corporate governance

Having a reporting company nominated means that your company or group is required to consider the filings each year and therefore you cannot overlook CIR and must consider its relevance annually. CIR can be overlooked, and there are consequences for not doing so.

For example, if the deadline for nominating a reporting company is missed, HMRC do not have to appoint one for you and then the company risks penalties for non-compliance. There are 6 months to nominate a reporting company after the year end and often groups are not able to assess their liability to CIR fully within this timescale. Having a company nominated avoids missing this deadline should the requirement come to fruition.

Increase in interest rates

Interest rates have been low for some time, and therefore the cost of finance has been at a level that excluded most standalone companies, and many groups from CIR. However, with costs of finance increasing, more companies will be closer to that £2 million de minimis threshold. Whilst you may be under the limit this year, that may change next year and protecting the unused allowances makes sense.

If you would like to consider filing an abbreviated return, we can help you.

Clair Dart

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