HMRC looks to simplify CIR rules for companies

The CIR rules are one of a number of measures which can limit the amount of interest UK companies can deduct for corporation tax purposes. They came into force in the UK from 1 April 2017 as part of a package of measures originating from the OECD/G20’s Inclusive Framework to implement 15 Actions to tackle base erosion and profit shifting (BEPS); the structuring of international groups’ operations to shift profits to low tax jurisdictions.

These rules have brought significant challenges to companies, not only due to resulting interest limitations, but also, unexpectedly, as a result of the complex administrative requirements. The CIR rules require separate filings, some with deadlines which cannot be extended and where there are errors in these filings, affected companies are unable to take advantage of some of the more beneficial elections within the rules, which enable businesses to maximise their deductions.

Having taken a more relaxed approach to the administration of the CIR rules since implementation, in 2023 HMRC announced a change in this approach at the same time as they started examining the filings companies had made, in some cases since 2017. The change resulted in some companies being informed of errors they had made (in administration rather than calculations) several years after the returns had been filed and, in some cases, years after they would have been able to correct those errors. The consequence for many if HMRC successfully pursued this approach would have been additional tax payable, running into millions in some cases.

HMRC has recently confirmed that it will adopt a more lenient approach for certain periods ending on or before 31 March 2024, and assist companies to correct administrative errors, where possible. However, in some cases both the affected companies and HMRC are now out of time to correct these errors and HMRC is considering its approach in these cases; the hope is that impacted companies will not be disadvantaged as a result.

The government’s announcement of its intention to work with those stakeholders affected by the unintentional complexity of administering the CIR rules to simplify and improve them is a positive step. However, many would welcome a wider review of these complex rules, which have already been amended at least eight times since coming into effect in 2017, but which still occasionally throw up unexpected outcomes that are hard to align with the stated policy goals of the regime.