The CIR rules apply to all companies within the charge to UK corporation tax and restrict the amount of deductible interest and other allowable financing costs in some situations.
A potential restriction occurs where the tax-interest expense for each year exceeds £2 million. This limit is shared between companies in the same worldwide group. ‘Worldwide group’ has the usual meaning for the purposes of accounting consolidation; so, wherever two companies share a common ultimate parent their aggregate tax-interest expense should be considered. ‘Tax-interest expense’ has a similar but not identical meaning to accounting interest expense.
Taxpayers that do not currently exceed the £2 million limit but that expect they might do so in the future should also consider the rules, as there may be an opportunity to ‘bank’ interest allowance for relief in future periods.
The mechanics of the rules and the calculation are complex. There are several elections available that need to be considered to reach the most favourable outcome. For example, use of the fixed ratio method versus the group ratio method will often be the first key decision. Even where no specific elections are made, concepts such as the modified debt cap need to be considered.