Corporate Interest Restriction (CIR)

The CIR was introduced in 2017 and looks to bring in a level of equality to the extent by which UK companies within international groups obtain a tax deduction for debt finance.


Historically, international groups have often funded UK businesses through debt, rather than equity, as relief would be given in the UK for the interest payments on that debt. This was particularly prevalent where the lending company was based in a lower tax jurisdiction.


The UK Treasury has sought to remove the incentive for international groups to finance UK businesses in this way.


The rules are complex, but in essence, they seek to restrict UK interest deductions to the higher of:


  • De minimis: £2m net interest
  • Fixed Ratio: 30% of ‘tax-EBITDA’
  • Group Ratio: Group’s ration of interest to EBITDA


Interest under the Fixed Ratio and Group Ratio tests will be limited to the overall interest of the ‘group’. Oddly a group is not defined as the usual ‘tax group’. Instead, a company is within a group if there is a requirement to prepare consolidated accounts for the group.


As the CIR works at a group level rather than at a company level, which is different to most taxing provisions, most calculations required under rules are carried out at the group level, with any interest restrictions being made afterwards to individual companies.


Helpfully, there are a number of tax elections that a group or company may wish or need to make to manage the impact of the CIR on the business. We will work with you to identify where these may be appropriate.


What next?

If you have any questions or would like assistance, please contact Thomas Adcock or a member of the tax team.

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