24th March 2016
Interest expense tax deduction
From 1 April 2017, the UK will introduce a restriction on interest deductions for corporation tax purposes which is targeted at large groups. There will be a de minimis threshold of £2m net UK interest expense. For tax purposes, interest deductions will be restricted to 30% of a group’s UK earnings before interest, tax, depreciation and amortisation (EBITDA).
However, groups that are highly geared for genuine commercial purposes, may apply a group ratio rule instead of the fixed rule. This will be based on the net interest to EBITDA ratio for the worldwide group.