Source: EY Global Tax Alert 18 May 2016
On 12 May 2016, HM Treasury and HM Revenue & Customs (HMRC) released a further consultation on the tax deductibility of corporate interest expense. This new consultation seeks input on the detailed design of the new rules for the purposes of drafting legislation to be included in Finance Bill 2017. Responses are sought by 4 August 2016.
In publishing this consultation on the detailed design, the Government has confirmed that from 1 April 2017 it will cap the amount of UK tax relief for interest to 30% of taxable earnings before interest, tax, depreciation and amortization (EBITDA) calculated across the UK group. Alternatively, groups may elect for the interest restriction to be based on the net interest to EBITDA ratio for the worldwide group. To ensure the rules are targeted at the greatest risk, the rules will include a de minimis allowance of £2 million net UK interest expense per annum and provisions for public benefit infrastructure. Disallowed interest can be carried forward indefinitely, while excess interest capacity can be carried for a maximum of three years. There is no provision for carry back. The Government has maintained its view that ”grandfathering” is only needed in exceptional circumstances.