CFM98680 | Interest restriction: administration: UK group company: reactivation of disallowed tax-interest amounts carried forward

TIOPA10/S379, SCH7A/PARA70(1)

Reactivation of tax-interest previously left out of account is only permitted where the reporting company for a worldwide group submits a full interest restriction return. The amounts to be reactivated in respect of a worldwide group period of account and the amounts allocated to each UK group company accounting period must be set out in a statement of allocated interest reactivations, which forms part of the interest restriction return TIOPA10/SCH7A/PARA25. The rules governing the amounts that may be reactivated for a company accounting period are set out in PARA 26.

S379(2) requires the UK group company to which reactivations are allocated for a relevant accounting period - an accounting period contained wholly or partly within the worldwide group period of account - to bring into account tax-interest amounts allocated to that accounting period. Amounts will be allocated to an earlier accounting period before a later one (this follows from S379(5)(a) and PARA 26(4)(a)) and cannot be allocated to an accounting period in which the company was not a member of the group (S379(5)(b), PARA 26(4)(b)).

If a company has delivered a company tax return for an accounting period but, as the result of the submission of an interest restriction return, information contained in the company tax return is incorrect, the company must amend its company tax return for the accounting period so as to correct the information - PARA 70(1).

The identification of amounts of tax-interest brought back into account is dealt with in S380, see CFM98690.

Note that if there has been a change in ownership of a company with investment business, which might otherwise be entitled to reactivate tax-interest amounts, and also a significant increase in its capital (which can include debt funding), the rules in CTA10/PT14 may come into play to deny relief for reactivated tax-interest amounts, where these are loan relationships debits, see CFM98693. This may also be the case where there is a major change in the conduct of the company’s business, or a period where the scale of the company’s activities had become small or negligible.