17 Apr 2025
HMRC updates approach to corporate interest restriction reporting
In this week’s Agent update, HMRC announced a U-turn in its approach to historic reporting company nominations required for corporate interest restriction (CIR) returns. This follows discussions with the Chartered Institute of Taxation (CIOT) and other stakeholders, including PKF Francis Clark.
Members of our team were involved in discussions with the CIOT and HMRC regarding CIR, following the publication of an article in Taxline setting out some of the key issues with the CIR.
The change in approach aims to address concerns raised by advisers and representative bodies regarding HMRC’s approach to CIR compliance.
What is corporate interest restriction?
Corporate interest restriction (CIR) is a set of rules implemented by the UK government to limit the amount of interest expense that companies can deduct from their taxable profits. The aim is to prevent companies from reducing their tax liability through excessive interest deductions. The corporate interest restriction rules apply if the UK entities in a group have a net interest expense of over £2m. These rules ensure that interest deductions are proportionate to the group’s taxable activities in the UK.
Background to corporate interest restriction reporting
To take advantage of the benefits of the interest restriction regime, such as interest reactivation and group ratio elections, you must submit a full interest restriction return (IRR). To do this, a reporting company nomination must be within 12 months of the year end. The reporting company nomination will then roll forward unless there is a change in the ultimate parent entity.
Prior to 2023, HMRC took a relaxed approach to reporting company nominations, using its discretion to nominate a reporting company where there had been oversight by the group or its tax advisors.
In June 2023, HMRC published agent update 109, which changed its approach to using its discretion to nominate a reporting company. This was prior to issuing any feedback or providing any notice. At the same time, HMRC began a campaign to identify historic reporting company nomination errors. They aimed to invalidate the submitted full interest restriction return and raise assessments to collect additional tax.
Key takeaways
The key takeaways from the latest Agent Update dated 17 April 2025 are:
- For periods ending between 31 March 2021 and 31 March 2024, HMRC will not pursue the point that failure to appoint a reporting company will invalidate previously filed interest restriction returns
- For periods ending on or after 31 March 2024, groups must make sure a valid reporting company is appointed before they submit an interest restriction return
This is a significant and welcome relaxation to the approach previously being taken by HMRC, which will provide comfort to many groups that were targeted by their campaign. Where groups previously accepted that a valid reporting company was not in place, they should approach HMRC to reverse any settlements made.
Although HMRC are relaxing their approach for historic periods, they still maintain that groups are responsible for ensuring that valid reporting company nominations are in place going forward.
It would therefore be reasonable to assume that the reporting company requirement will be carefully monitored by HMRC for periods ending on or after 31 March 2024.
Actions to take
- Speak to your advisor about updating your groups reporting company nomination
- Ensure your group has evidence of a valid reporting company nomination for periods ending after 31 March 2024
- Update the group’s tax risk control framework to ensure processes are in place for a valid reporting company nomination
If you would like to speak to us about your groups corporate interest restriction obligations, please contact Chris Rodgers or Stuart Rogers.
