Some changes to the draft Finance Bill 2017 legislation on tax deductibility of corporate interest expense have been announced.
As previously announced and consulted upon, a new corporate interest restriction regime is being introduced, which will apply from 1 April 2017 regardless of a company’s year-end. The new rules will restrict each group’s net deductions for interest based on a percentage of UK earnings before interest, tax, depreciation and amortisation (EBITDA) limited by the net interest expense of the worldwide group. Up to £2 million of net interest expense per annum in a group will not be restricted by these rules.
The Spring Budget announced a number of changes to the draft Finance Bill 2017 legislation previously published. The aim of these changes is to ensure that the rules do not give rise to unintended consequences or impose unnecessary compliance burdens. These changes include:
HMRC have engaged in a helpful consultation with interested parties and the changes which have been announced are expected to improve the workings of the rules. However, there is still likely to be a significant compliance burden from applying the new corporate interest regime, and there may be unexpected results.
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