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Corporate interest restriction – tax elections

12 February 2020

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There are currently 14 different tax elections that a group or company may wish or need to make to manage the impact of the CIR on the business.

The table below provides a brief summary of each. Please get in touch if you would like specific advice on whether or not making an election would benefit your business.

 

Election (Section ref from TIOPA 2010) Timing Duration Group-wide or company effect Impact
Group Ratio
(s398)
Made in return Can be revoked in a subsequent return (in same period) Group Applying this method, the basic interest allowance is the lower of:
1.  The group ratio percentage of the aggregate tax-EBITDA, and
2.  The group ratio debt cap for the period. 
Group Ratio – Blended
(s401 – s403)
Made in return Can be revoked in a subsequent return (in same period) Group Allows an entity (eg a Joint Venture which has two or more investors) the option to take on a similar Group Ratio profile to that of its investors. Generally a group with a related party investor in the ultimate parent who has a higher group ratio than the group will benefit from making this election.
Interest Allowance - Alternative Calculation
(s423 – s426)
Made in return Permanent, cannot be revoked Group Alters calculation of group-EBITDA and ANGIE and QNGIE. Affects:
-       Capitalised Interest
-       Pension contributions
-       Employee share acquisitions
-       Changes in accounting policy.
Interest Allowance - Non-Consolidated Investment
(s427) 
Made in return Can be revoked in a subsequent return (in same period) Group Allows a worldwide group to include a proportion of qualifying net group interest, adjusted net group Interest and group-EBITDA of an associated worldwide group.

Alters calculation of group-EBITDA and ANGIE and QNGIE.
Interest Allowance - Consolidated Partnerships
(s430)
Made in return Can be revoked in a subsequent return (in same period) Specified companies Allows a worldwide group which fully consolidates a partnership the option to treat the partnership as if it were not fully consolidated into the worldwide group for the purpose of calculating the worldwide group’s group ratio, group-EBITDA, ANGIE and QNGIE
Group-EBITDA - chargeable gains
(s422)
Made in return Permanent, cannot be revoked Group Alters calculation of group-EBITDA.

The election replaces the recalculated profit amounts used in the capital (disposals) adjustment with the sum of any relevant gains less the sum of relevant losses that accrue on disposal of relevant assets.
Abbreviated return election
(Sch 7A, para 19)
Made in return Can be revoked and a full interest restriction return submitted within 5 years of the end of the period of account.   Group Elect to submit an abbreviated return where the worldwide group is not subject to interest restrictions in the return period.
Public Infrastructure Exemption
(s433)
Before period starts or by 31 March 2018 if later Continuing – can be revoked after 5 years, cannot re-elect for 5 years Company Where election made, certain amounts of interest and other finance costs are excluded from being tax-interest expense of the company. In addition, some amounts of the Qualifying Infrastructure Election (QIC) are to be ignored or treated as nil in calculating other figures for the purposes of the fixed ratio and group ratio.
Public Infrastructure Exemption – Group Elections
(s435)
Before period commences Continuing – can be revoked jointly by the members of the election or cease to have effect for one (or more) members of the election by notice to HMRC and other members of the joint election  Specified companies Two or more qualifying infrastructure companies, which are members of the same worldwide group, may make a joint election so to apply the infrastructure rules to them collectively.
Public Infrastructure Exemption – QIC JV election
(s444)
Before end of accounting period from which it is to have effect Continues while QIC test met but can be revoked, after revocation cannot elect back in for 5 years. Specified companies Allows a QIC JV company to retain aspects of its QIC status in relation to the interests held by QIC investors but also ensure that it is not disadvantaged by non-QIC investors.
Disregard Provisions
(FA 2017 (No.2) Sch10 Para31)
Before 1 April 2018 Permanent, cannot be revoked Company – but must be made by all companies within the Group The amounts of group-interest and group-EBITDA that are used for the fixed ratio debt cap and the group ratio method are calculated on the assumption that regulations 7, 8 and 9 of the Disregards Regulations (S.I. 2004 / 3256) are applied. The transitional provisions provide for an election to be made so that the Corporate Interest Restriction rules are applied on the assumption that the company had elected into regulations 7, 8 and 9. 
Fair Value election 12 months after the end of the first period in which the company has a fair value creditor relationship Permanent, cannot be revoked Company To apply the amortised cost basis to creditor loan relationships instead of applying fair value accounting for a company with a creditor loan relationship (i.e. a loan receivable).
To disapply s484(2) Before the end of the period or by 31 March 2018 if later Permanent, cannot be revoked Group If the ultimate parent of a multi-company group fails to draw up financial statements for the group, but does draw up financial statements for itself, then the period of account used to produce these accounts is taken as the worldwide group's period of account (s484). The ultimate parent can elect that this rule does not apply. 
To alter the default period of account  Before the end of the period or by 31 March 2018 if later Permanent, cannot be revoked (although a subsequent election for a different period can be made) Group If the ultimate parent does not draw up financial statements for the worldwide group and also does not draw up financial statements for itself, then the group can either:
1. Use the default period of accounts for the accounts free period as prescribed by the rules (s485), or
2. Make an election to override the default treatment and specify the period of account (s486).

 

Corporate interest restriction – how it works in the UK