Corporate Interest Restriction (CIR)
- Taylor Keeble
- 11 minutes ago
- 3 min read
The Corporate Interest Restriction (CIR) rules, introduced in April 2017, place limits on the amount of interest and financing costs that UK companies can deduct for corporation tax purposes. They were enacted as part of the UK’s commitment to the OECD’s Base Erosion and Profit Shifting (BEPS) Action 4 recommendations.
The rules are detailed and can create significant compliance obligations for groups with high levels of debt. Below is a more technical overview.
Scope of CIR
The CIR applies to:
UK companies, and
UK permanent establishments of non-resident companies.
It operates at the level of the worldwide group, which is based on consolidated financial statements prepared under IFRS or equivalent GAAP.
For CIR purposes, the key measure is net tax-interest expense, broadly:
Tax-interest income – e.g. interest receivable, financing-related credits
Tax-interest expense – e.g. loan interest, financing costs, discounting, certain FX gains/losses, amounts under derivative contracts
The £2 Million De Minimis Limit
If a group’s net tax-interest expense is below £2 million in a 12-month period, the full amount is deductible. No ‘reporting company’ needs appointing and no CIR return is needed.
Where the threshold is exceeded, restrictions may apply unless sufficient allowances exist.
Interest Allowance — Calculation Methods
Where the £2m de minimis is breached, groups must calculate their interest allowance. Two methods are available:
1. Fixed Ratio Method (default)
The allowance is the lower of:
30% of UK tax-EBITDA, and
The Fixed Ratio Debt Cap (the net external interest expense of the UK group).
This method broadly aligns UK deductions with a standard leverage level.
2. Group Ratio Method (election required)
The allowance is the lower of:
The Group Ratio % × UK tax-EBITDA, and
The Group Ratio Debt Cap (adjusted for certain items).
The Group Ratio Method may be beneficial where the group as a whole is highly leveraged. The election must be made in the CIR return and applies to all UK group companies.
Disallowances and Carry Forwards
Any disallowed interest is allocated among UK group members (by agreement).
Disallowed amounts are carried forward indefinitely and may be “reactivated” in future periods where there is spare capacity.
Excess debt cap capacity and excess interest allowance can also be carried forward for up to 5 years.
Compliance and Administration
Where the £2m threshold is exceeded:
The group must appoint a ‘reporting company’ within 6 months of the period end.
A CIR return must be filed electronically within 12 months.
The return details the calculation, any disallowances, elections (such as to use the Group Ratio Method), and the allocation of restricted amounts.
If above the threshold but no restriction arises, an abbreviated return should be filed.
Failure to appoint a ‘reporting company’ allows HMRC to appoint one on behalf of the group. Late filing or non-filing may lead to penalties.
Why This Matters
The CIR rules are highly technical but increasingly relevant as interest rates and borrowing costs rise. Key risks for businesses include:
Unexpected restrictions reducing deductible interest.
Missed elections that could otherwise increase available allowances.
Penalties for late or incorrect filings.
Regular monitoring and modelling of net interest expense is essential, especially for groups near the £2m threshold or with complex financing arrangements.
Speak to an Expert
We advise businesses on assessing whether CIR applies, preparing interest allowance calculations, filing CIR returns, and planning financing structures to minimise restrictions.
Authored by: London Team
