Kate Gott Corporate Tax Director

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Kate Gott

Corporate Tax Director

Kate joined Wilson Wright in 2016, having predominantly worked within the UK’s top 10 accounting firms over the previous decade.

She is a chartered tax adviser specialising in advising businesses and their owners. She works for a wide range of clients, including companies, LLPs and partnerships.

Her areas of expertise include research and development tax credit work, both international and domestic tax efficient structuring, transfer pricing, and due diligence. Kate also has significant experience of working with private equity structures and professional service firms.

She works closely with her clients to ensure they keep up to date with their tax compliance obligations and are aware of tax planning opportunities and changes to the tax legislation that may affect them.

16 Oct 2023

Basic rules

Very broadly, the Corporate Interest Restriction applies to groups with an aggregate UK net tax-interest expense in excess of:

• £2m net interest (pro-rated for short or long periods of account)
• 30% of tax EBITDA – Fixed Ratio
• Group’s ratio of interest to EBITDA

To date, most small and medium-sized groups have not been affected by the CIR regime. However, given the recent increase in the rates of interest, we are seeing more companies being unexpectedly caught by the rules.

Application of the rules

The rules operate in relation to the worldwide group and by reference to the period of account. A ‘Group’ usually refers to an ultimate parent and each of its 50% subsidiaries.

Interest under the Fixed Ratio and Group Ratio tests will be limited to the overall interest of the ‘Group’.

Relevant calculations

The CIR applies after other tax adjustments.

Total Net Interest is calculated by subtracting the total Interest Expense from the total Interest Income. Other relevant adjustments should be considered, some of these include transfer pricing and thin capitalisation. ‘Interest’ covers a wide range of interest and interest-like expenses, including:

• Most loan relationship debits;
• Some derivative contract debits; and
• The finance cost element of certain arrangements or transactions involving finance leasing, debt factoring or service concession arrangements.

Tax EBITDA is calculated by taking profits chargeable to corporation tax, and is adjusted for items such as interest, capital allowances, adjustments in relation to intangible fixed assets and enhanced reliefs such as Research and Development Tax Relief or Land Remediation Relief.

Reporting requirements

Companies that fall within the scope of the CIR rules must file a CIR return with HMRC. The CIR return and associated calculations are used to calculate the interest capacity of the company and the amount of interest expense that can be deducted for corporation tax purposes.

This is an incredibly technical area that requires a lot of work to ensure that the calculations are correct.

Speak with us

If you have concerns or would like to discuss the impact this may have on your business, please do contact our experts.