How does the corporate interest restriction work?
Answered 11 March 2026
Here is a comprehensive explanation of how the Corporate Interest Restriction (CIR) works, drawing on the available sources.
What the Law Says
The Corporate Interest Restriction (CIR) rules are contained in Part 10 of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010), with administrative rules in Schedule 7A. The rules apply to worldwide group periods of account starting on or after (or straddling) 1 April 2017.
HMRC Guidance / Practice
1. Who Is Affected?
The rules apply to a worldwide group — a parent and its consolidated subsidiaries (defined at TIOPA10/S473) — where at least one member is a UK-resident company or has a UK permanent establishment.
There is a de minimis threshold of £2 million of aggregate net tax-interest expense (ANTIE) per annum. Groups below this level are not subject to restriction.
2. The Core Mechanism
The rules operate at the worldwide group level. The key question is whether the group's aggregate net tax-interest expense (ANTIE) exceeds its interest capacity (i.e., its interest allowance). If it does, the excess is disallowed.
Disallowance means leaving tax-interest expense amounts out of account when computing a UK group company's corporation tax.
3. Calculating the Interest Allowance
The basic interest allowance depends on which method the group uses:
Fixed Ratio Method (default)
The interest allowance is the lower of:
- 30% of aggregate tax-EBITDA of the worldwide group; and
- The fixed ratio debt cap (broadly, the group's net external interest expense — ANGIE).
Group Ratio Method (optional election)
The interest allowance is the lower of:
- The group ratio percentage (net group interest / group EBITDA from consolidated accounts) multiplied by aggregate tax-EBITDA; and
- The group ratio debt cap.
This method can be beneficial where the group's actual leverage ratio exceeds 30%.
Public Infrastructure (optional)
Groups providing public infrastructure can elect to use a different approach that restricts deductions based on whether interest is paid to related parties or lenders with recourse to infrastructure assets, rather than a percentage of earnings. No de minimis limit applies in this case.
4. Carry Forward Rules
- Disallowed interest is carried forward indefinitely at company level and can be reactivated in a later period if there is sufficient interest allowance.
- Unused interest allowance is a group attribute and can be carried forward for up to five years.
- Where there is unused interest allowance, the group must reactivate the maximum possible amount — this is not discretionary.
- Reactivations can only occur where there is a reporting company in place.
5. Administration
- Groups normally appoint a reporting company to act on behalf of the worldwide group and file an interest restriction return (IRR).
- The reporting company allocates disallowances at its discretion among consenting UK group companies.
- A non-consenting company cannot be allocated more than its pro-rata share of the group's total disallowance.
- If no reporting company is appointed and no compliant IRR is filed, each UK group company must compute and disallow its own pro-rata share in its company tax return.
- The CIR has its own enquiry procedures, information powers, and penalties for non-compliance.
Summary Flow
- Calculate the group's ANTIE (aggregate net tax-interest expense).
- Calculate the group's interest allowance (using fixed ratio or group ratio method).
- If ANTIE > interest allowance → interest restriction arises.
- The restriction is allocated to UK group companies by the reporting company.
- Disallowed amounts are carried forward for potential future reactivation; unused allowance is carried forward for up to five years.
Citation sources
CFM95000 onwards explains the tax rules in relation to Corporate interest restriction which are found in Part 10 of the Taxation (International and Other Provisions) Act 2010. These rules only apply to worldwide group periods of account starting on or after (or straddling) 1 April 2017. Use this section to find out which groups are affected by Corporate Interest Restriction rules, how these rules are administrated, how to calculate disallowances and to find details of the special or transitional
A company that has been subject to interest restriction will have a history of disallowances, and possibly reactivations, leaving it with a balance of past disallowances less reactivations at the end of each accounting period. This is its amount available for reactivation (s378). Where a worldwide group has unused interest allowance for a period of account this must be applied to reactivate amounts at company level. This is not discretionary. Subject to limits set by other rules, the group must
Computation of a worldwide group's basic interest allowance for a period is a stepping point in computing its interest allowance and thence interest capacity for the period. It does not take into account any interest allowance brought forward from earlier periods, or the de minimis amount. The amount depends on whether the fixed ratio method or group ratio method is applied. Where the fixed ratio method applies, it is the lower of: 30% (the fixed ratio) of aggregate tax-EBITDA of the worldwide g
The rules for the Corporate Interest Restriction are contained within Part 10 of Taxation (International and Other Provisions) Act 2010. The legislation is structured as follows. Chapter 1 introduces the corporate interest restriction. Chapter 2 explains the disallowance of tax-interest and how the carry-forward of disallowed interest works. Chapter 3 defines the tax-interest expense amount, the tax-interest income amount, the net tax-interest expense and the aggregate net tax-interest expense.
For definitions of technical terms used in this example, see the glossary at CFM99500. For a summary of the core rules see CFM95200+. In the 12-month period of account to 31 March 2018, a stand-alone housing association has property income of £4.50m (before funding costs). The tax-adjusted property trading profits (before funding costs) is £4.35m. The interest expense on borrowings (all from unrelated parties) is £3.13m and credits on interest rate derivatives are £0.08m (measured on an accruals
The purpose of the carry forward provisions within the Corporate Interest Restriction is to reduce the risk that additional interest restrictions are imposed due to variations over the business cycle, other sources of volatility, and the fact that the rules are applied separately to each period of account. Volatility in a group's profitability, or in the prevailing levels of interest rates, could result in large disallowances in one period but none in others, leading to different outcomes depend
This guidance applies to periods of account of worldwide groups that begin on or after 1 April 2017 and reflect the changes brought about by the Corporate Interest Restriction rules. There are transitional provisions (not covered here) applying to periods that straddle 1 April 2017, but broadly periods of account straddling this date are treated as two notional periods. A worldwide group is defined in the Corporate Interest Restriction rules at TIOPA10/Part 10/S473. A worldwide group is a parent
The rules will operate on a worldwide group basis (based on IFRS consolidation rules) for each period of account of the group’s ultimate parent. This will allow groups to manage any restriction across their UK businesses. Groups can nominate one company to file for the whole group. The default fixed ratio method imposes two main limits on the group’s tax-interest deductions. The first is by reference to a fixed ratio of 30% of the taxable earnings before tax-interest, depreciation and amortisati
The Corporate Interest Restriction rules differ from the normal corporation tax regime in that the computational provisions work mainly at the level of the worldwide group. Only once the group level computations have been made can disallowances of net interest expense, or reactivations of previously disallowed amounts, be allocated to UK group companies. TIOPA10/SCH7A contains legislation designed to enable efficient administration of the provisions. Both detailed guidance and a more comprehensi