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The UK Treasury and HMRC have published a detailed consultation on the legislation which will be introduced next year to restrict interest deductions for UK groups following Action 4 of the OECD BEPS initiative. Taxand UK provides a high level summary of the proposals and identifies some of the key issues to be considered.
With effect from 1 April 2017, UK groups will be restricted to interest deductions of 30% of EBITDA. Where the worldwide group has a higher ratio, groups will be able to elect to use this. There will be a de minimis threshold of £2 million of interest and only net interest expense in excess of this will be restricted. Restricted interest may be carried forward indefinitely, and spare capacity for up to three years.
The Debt Cap rules are being abolished and replaced with a modified rule which will restrict interest deductions where UK interest expense exceeds worldwide interest.
There may be a more generous regime for certain public infrastructure projects, but this appears to have very narrow application. Banks, insurance companies, and certain other particular vehicles may have separate or modified rules applied to them.
Discover more: Restrictions on interest deductions
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Any companies or groups who are UK corporation taxpayers will need to consider the application of these new rules and whether to respond to the consultation. The consultation period closes on 4 August and it is expected that there will be substantial and detailed representations made by affected groups, advisers and trade bodies.