Restriction on Corporation Tax relief for interest deductions
Source: gov.uk (2025-08-29)

Check if your company’s or group’s interest deductions for Corporation Tax will be restricted, and if you need to send a Corporate Interest Restriction return.

When you work out how much UK Corporation Tax your company or group has to pay, there’s a limit (known as a Corporate Interest Restriction). This limits the amount of tax relief you can get for deducting net interest and other financing costs.

This Corporate Interest Restriction only applies to individual companies or groups of companies that have net interest and financing costs of over £2 million in a 12-month period.

If your company’s or group’s net interest and financing costs are restricted, you should appoint a reporting company within 12 months of the end of the period of account. The reporting company must then submit a Corporate Interest Restriction return.

If your net interest and financing costs are less than £2 million

Your company or group does not need to submit a Corporate Interest Restriction return. However, you must keep documents that show that your company or group will not deduct more than £2 million in net interest and financing costs in that period of account.

You can still appoint a reporting company, this company must then submit an abbreviated return. To reduce a future interest restriction, you can carry forward unused interest allowance for up to 5 years by replacing the abbreviated return with a full return for that period of account.

If your net interest and financing costs are more than £2 million

You must work out your company’s or group’s ‘interest allowance’. This is the maximum amount of net interest and financing costs your company or group can deduct in a period of account.

You can use the ‘fixed ratio method’ or the ‘group ratio method’. Use the method that gives you the largest allowance.

You must keep records of your calculation.

If your company’s or group’s net interest and financing costs are restricted, you should normally appoint a reporting company within 12 months of the end of the period of account unless you have previously appointed one. The reporting company must then submit a full Corporate Interest Restriction return.

Fixed ratio method

Using the fixed ratio method, the interest allowance is the lower of:
- 30% of the company’s or group’s UK taxable profits before interest, taxes, capital allowances and some other tax reliefs
- the company’s or group’s worldwide net interest expense
Group ratio method

To use this method, you must:
- appoint a reporting company
- elect to use the method in a Corporate Interest Restriction return
Using the group ratio method, the interest allowance is the lower of:
- the ratio of the company’s or group’s worldwide net interest expense owed to unrelated parties, to the company’s or group’s overall profit before tax, interest, depreciation and amortisation multiplied by the company’s or group’s taxable UK profits before interest and capital allowances
- the company’s or group’s worldwide net interest expense owed to unrelated parties
If your interest deductions are not restricted

You can appoint a reporting company, which must then submit an abbreviated return. If you replace the abbreviated return with a full return for that period of account, you can carry forward unused interest allowance for up to 5 years to reduce a future interest restriction.

Appoint a reporting company

Individual companies and groups can appoint a reporting company. Your reporting company will be responsible for submitting your company’s or group’s Corporate Interest Restriction return. The reporting company must be:
- liable to UK Corporation Tax
- non-dormant
- authorised by at least 50% of the group’s non-dormant companies (which are liable for UK Corporation Tax) to be appointed as the reporting company
When you have appointed a reporting company, you must submit a Corporate Interest Restriction return for every period of account, including when there’s no interest restriction. If you revoke the appointment of a reporting company and do not have an interest restriction, you will not have to submit a return.

Tell HMRC about the appointment of your reporting company

Tell HMRC about the appointment of your reporting company

You must submit your reporting company appointment electronically either by:
- using commercial software
- completing the online form
You must also use the above methods if you need to revoke a reporting company appointment.

Using commercial software

To appoint a reporting company using commercial software, you will need a Government Gateway user ID and password. If you are an agent submitting the appointment on behalf of your client, you can use your own Gateway user ID and password.

If you do not have a user ID, you can create one when you use the service. HMRC will only accept submissions from organisations that have a Corporation Tax account with us.

Check ‘Commercial software suppliers for Corporation Tax’ (https://www.gov.uk/government/publications/corporation-tax-commercial-software-suppliers) for a list of commercial software suppliers for Interest Restriction Returns and reporting company appointments.

Using the online form

To appoint a reporting company:
- Fill in the template.
- Sign into the Government Gateway to complete the online form and upload the template (https://www.tax.service.gov.uk/submissions/new-form/corporate-interest-appoint-company).
(https://assets.publishing.service.gov.uk/media/62ab3467e90e0765d25decca/Template_for_the_appointment_of_a_reporting_company.ods)

Template for the appointment of a reporting company (https://assets.publishing.service.gov.uk/media/62ab3467e90e0765d25decca/Template_for_the_appointment_of_a_reporting_company.ods)

ODS, 5 KB

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To use the online service, you need a Government Gateway user ID and password. If you do not have a user ID, you can create one when you use the service.

You only need to appoint a reporting company once.

Revoke the appointment of a reporting company

To change your reporting company, you’ll need to tell HMRC you want to revoke your current reporting company and appoint a new one.

Sign into the Government Gateway to complete the online form and upload the template (https://www.tax.service.gov.uk/submissions/new-form/corporate-interest-revoke-company). This needs to be authorised by at least 50% of the group’s non-dormant companies (that are liable for UK Corporation Tax).

Submit a return

Your reporting company must submit a return within 12 months of the end of the reporting period the return is for.

Find out how to submit a full or abbreviated Corporate Interest Restriction return (https://www.gov.uk/guidance/submit-a-corporate-interest-restriction-return).

You must submit your Corporate Interest Restriction return electronically by either:
- using commercial software
- completing the online form
This applies to both original and revised returns.

Check ‘Commercial software suppliers for Corporation Tax’ (https://www.gov.uk/government/publications/corporation-tax-commercial-software-suppliers) for a list of commercial software suppliers for Interest Restriction Returns.

From 1 October 2022 you’ll need to give us more information on a Corporate Interest Restriction return.

You’ll need to tell us:
- the country of incorporation for the larger parent company (ultimate parent) — if they do not have a Corporation Tax Unique Taxpayer Reference (UTR)
- the legal entity identifier for the larger parent company (ultimate parent) if they have one
- if there are any companies within the group who have made a qualifying infrastructure company election — which has effect within the period of account
- the Self Assessment Unique Taxpayer References of any UK partnerships where the group has made an interest allowance (consolidated partnerships) election
- the adjusted net group-interest expense for the period, even if the group ratio is used
If you need to send us additional information, email your Customer Compliance Manager or the Large Business ‘Contact Us’ mailbox (https://www.gov.uk/guidance/contact-hmrcs-large-business-directorate).

If you do not have a Customer Compliance Manager, you should email the additional information to xxx@xxx.xx (mailto:xxx@xxx.xx).

Make an election

Elections let you choose a particular way of having your company’s or group’s tax treated, like choosing to use the group ratio method to work out your interest allowance. You should make elections in a Corporate Interest Restriction return.

If you need to make an election, but cannot do it in a return, send the details of the election to your Customer Compliance Manager or the Large Business ‘Contact Us’ mailbox (https://www.gov.uk/guidance/contact-hmrcs-large-business-directorate).

Or, post the details of the election to:

Corporation Tax ServicesHM Revenue and CustomsBX9 1AX

You should mention Corporate Interest Restriction in your election to help HMRC direct your letter to the correct team.

Penalties

If your company or group does not submit a Corporate Interest Restriction return when it should, it might have to pay a fixed penalty of:
- £500 if the return is up to 3 months late
- £1,000 if the return is more than 3 months late
If you submit an inaccurate Corporate Interest Restriction return, your company or group might have to pay a penalty of up to 100% of the extra tax (or lower tax relief) owed in the corrected return.

The amount of penalty you’ll have to pay will depend on the type of error and when you told HMRC about it. The penalty might be less if you tell HMRC about your error before we discover it.

Get more information

For help or more information, you can:
- find more information about Corporate Interest Restriction in HMRC’s Corporate Finance Manual (https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm95000)
- contact your Customer Compliance Manager
- if you do not have a Customer Compliance Manager, email xxx@xxx.xx (mailto:xxx@xxx.xx) — do not email returns