Corporate Interest Restriction Rules

The Corporate Interest Restriction rules limit how much tax relief your company or group can claim for interest expenses and financing costs. If your net interest and financing costs exceed £2 million in a 12-month period, you'll need to calculate your interest allowance and may need to appoint a reporting company to submit returns to HMRC.

Does the restriction apply to you?

The Corporate Interest Restriction only applies if your company or group has net interest and financing costs of more than £2 million in a 12-month period of account.

Net interest and financing costs means the total interest expense and other financing costs your business pays, minus any interest income you receive.

If you're below this £2 million threshold, you don't need to submit a Corporate Interest Restriction return. However, you must keep documents showing that your company or group will not deduct more than £2 million in net interest and financing costs during that period.

What is the interest allowance?

If your net interest and financing costs exceed £2 million, you must work out your interest allowance. This is the maximum amount of net interest and financing costs your company or group can deduct when calculating Corporation Tax.

You can use one of two methods to calculate your allowance:

Fixed ratio method

Using this method, your interest allowance is the lower of:

• 30% of your company's or group's UK taxable profits before interest, taxes, capital allowances and some other tax reliefs
• Your company's or group's worldwide net interest expense

Group ratio method

This method considers your worldwide group's position. Your interest allowance is the lower of:

• The ratio of your group's worldwide net interest expense owed to unrelated parties, to your group's overall profit before tax, interest, depreciation and amortisation, multiplied by your group's taxable UK profits before interest and capital allowances
• Your group's worldwide net interest expense owed to unrelated parties

To use the group ratio method, you must appoint a reporting company and elect to use this method in a Corporate Interest Restriction return.

You should choose whichever method gives you the largest allowance. You must keep records of your calculation.

Carrying forward unused allowance

If your interest deductions are below your interest allowance, you can carry forward the unused portion for up to 5 years to reduce a future interest restriction.

To do this, you need to appoint a reporting company and submit either an abbreviated return or a full return. If you initially submit an abbreviated return, you can replace it with a full return for that period to use the carried forward amount.

Appointing a reporting company

A reporting company is responsible for submitting Corporate Interest Restriction returns on behalf of your company or group.

You need to appoint a reporting company if you want to:

• Allocate disallowed amounts to specific companies in the group
• Carry forward unused interest allowance
• Claim a reactivation of amounts you previously disallowed
• Make an election in your return (such as using the group ratio method)

Requirements for a reporting company

The reporting company must be:

• Liable to UK Corporation Tax
• Non-dormant (actively trading)
• Authorised by the group's non-dormant companies that are liable for UK Corporation Tax

The authorisation requirements differ depending on when your period of account ends:

For periods ending on or before 30 March 2026:

• At least 50% of the group's non-dormant companies must authorise the appointment
• You must appoint the reporting company within 12 months of the end of the first period of account
• The appointment carries forward to future periods automatically
• You must submit a Corporate Interest Restriction return for every period of account, even where there is no interest restriction

For periods ending on or after 31 March 2026:

• At least 50.01% of the group's non-dormant companies must authorise the appointment
• You must appoint the reporting company for each period separately
• There's no time limit for appointing one
• You only need to submit a return if you're allocating disallowed amounts, carrying forward interest allowance, claiming a reactivation, or making an election

How to appoint a reporting company

For periods ending on or before 30 March 2026:

You must tell HMRC about the appointment either by using commercial software or by completing an online form and uploading a template. You need a Government Gateway user ID and password to use either method. You only need to appoint a reporting company once, as the appointment carries forward.

For periods ending on or after 31 March 2026:

You tell HMRC about the appointment on the Corporate Interest Restriction return itself.

If you submit a return and the reporting company has not been appointed correctly, your return will be invalid and you may receive a penalty. You can appoint them correctly after you've submitted the return, and you don't need to resubmit the return unless the reporting company changes.

Submitting a Corporate Interest Restriction return

Returns must be submitted electronically, either using commercial software or by completing HMRC's online form and uploading a template.

For periods ending on or before 30 March 2026:

The reporting company must submit a return within 12 months of the end of the period.

For periods ending on or after 31 March 2026:

You only need to submit a return if you want to allocate disallowed amounts, carry forward unused interest allowance, claim a reactivation, or make an election.

Types of returns

Full return: Required if your interest is restricted and you want to allocate disallowed amounts, or if you're claiming reactivations or making elections.

Abbreviated return: You can submit this if your company or group does not have an interest restriction but you want to carry forward unused interest allowance.

To use the online service, you need a Government Gateway user ID and password. If you're an agent submitting on behalf of a client, you can use your own credentials. HMRC will only accept submissions from organisations that have a Corporation Tax account.

Sources

• Restriction on Corporation Tax relief for interest deductions
• Submit a Corporate Interest Restriction return

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.