This week’s article looks at more of the administrative requirements of the new regime.
This is the tenth of our series of articles looking at some of the detail of the new corporate interest restriction (CIR) rules, which have been removed from Finance Bill 2017. Based upon HMRC messaging that “There has been no policy change and the Government has announced it will legislate for the provisions at the earliest opportunity in the next Parliament” we would recommend that groups assume that the rules will apply from 1 April 2017 until an announcement is made by Ministers. Last week, we looked at some of the extensive administrative requirements of the new regime, and this week, we take a look at the remainder of the provisions.
The CIR regime requires the amount of disallowed or reactivated net interest-like expenses to be computed for the group and then allocated between UK group companies. There are detailed rules regarding how these allocations are to be made and other aspects of administering the rules.
This week, we are looking at:
Time limits for returns and amendments to returns
In most cases, an interest restriction return (IRR) must be submitted within 12 months of the end of the period of account. However, once the IRR has been filed for a period, a group may file revised IRRs up to 36 months after the end of the period. In some scenarios, the need to submit a revised return might be driven by a lack of information at the time of the initial filing date. However, where any estimates are used, the IRR must specifically identify these estimates and the reporting company must notify HMRC if any estimates have not been finalised within 36 months after the end of the period of account.
A group will be required to file a revised IRR in certain circumstances where other group companies amend their tax returns or HMRC issues a closure notice which amends the IRR.
Interaction with UK group companies’ own CT returns
Any disallowances or reactivations allocated in an IRR automatically flow through as amendments to a group company’s tax return, regardless of any time limits that might otherwise apply. There is a default order for identifying the type of tax-interest amounts (e.g. trading or non-trading interest) that are disallowed or reactivated at company level, which the company may elect to vary in its own tax return.
There are various specific rules requiring companies’ corporation tax returns to be amended to take account of the operation of the CIR rules (e.g. if a company becomes subject to a disallowance after it has filed its return).
Powers and duties of reporting company in relation to information etc.
The reporting company is given an enforceable power to require UK group companies to provide the information it needs to perform its functions. It must also provide a copy of the submitted IRR or any closure notices from HMRC to UK group companies.
HMRC powers and enquiries
HMRC have the power to correct obvious errors, omissions, or other inaccuracies in an IRR although draft guidance says this power will only be used in practice where HMRC consider an enquiry is unnecessary or inappropriate.
HMRC may open an enquiry into an IRR (including the composition of a group or the period of account) within 39 months of the end of the period of account (subject to extension in certain cases). This does not open a company tax return enquiry into each UK group company, and is separate from any such enquiry. However, on settlement of an IRR enquiry, individual company returns may need to be amended and the rules allow flexibility for affected companies to make consequential claims.
HMRC have the power to make a determination disallowing interest expenses of specific UK group companies where either no reporting company has been appointed or no (valid) IRR submitted, or the group fails to amend its IRR in accordance with a closure notice.
HMRC also have information powers to require group members or third parties (in certain circumstances) to provide information or documents reasonably required for checking an IRR, provided the IRR is under enquiry.
Record-keeping, penalties and SAO regime
The reporting company must keep records to support the submitted returns until six years after the period of account.
There are penalties for failure to submit returns, incorrect returns (in some circumstances) and failing to keep records.
For companies within the Senior Accounting Officer (SAO) regime, appropriate tax accounting arrangements will include procedures to determine whether the group is subject to an interest restriction and, if it is, to calculate that restriction accurately.
The previous articles in this series can be found here:
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