Corporate Interest Restriction (CIR): Rules, thresholds and compliance explained
The Corporate Interest Restriction (CIR) is a UK corporate tax rule that limits how much interest costs companies or groups can deduct when calculating their tax liability. CIR rules restrict tax relief for net interest expenses to 30% of tax adjusted EBITDA, where annual UK net interest costs exceed £2 million.
Introduced in 2017, the CIR regime aims to prevent multinational groups from reducing UK taxable profits through excessive interest deductions.
Below, we explore the rules, compliance obligations, and the changes to reporting company requirements introduced in the 2025 Autumn Budget.
Key rules at a glance
- Limits tax relief for interest to 30% of tax adjusted EBITDA
- Requires groups to appoint a reporting company
- The reporting company must submit a CIR return
- Unused interest capacity can occasionally be carried forward for up to 5 years
Which businesses are affected by CIR?
If the net interest and financing costs of your business or group of businesses exceed £2 million over a 12 month period, a reporting company will usually need to be appointed within 12 months of the end of that period, unless one has previously been appointed.
For these purposes, a group is an ultimate parent plus consolidated entities. Determining the consolidation and which entities fall within it can be complex.
Once appointed, the reporting company must submit a CIR return to HMRC.
How to calculate your interest allowance
The following two methods are available:
- the fixed ratio method
- the group ratio method
The method which gives the largest allowance is the one which should be used, and records of the calculation must be kept.
Fixed ratio method
Under this method, the interest allowance is the lower of:
- The global net interest expense of the business or group
- 30% of the UK taxable profits of the business or group before tax, interest, capital allowances and other tax reliefs
Group ratio method
To use this method, a reporting company must be appointed and the business must choose the method in a CIR return.
The interest allowance is the lower of:
- The global net interest expense owed to unrelated parties
- The percentage that the global net interest expense owed to unrelated parties represent of the overall group EBITDA, applied to the UK taxable profits before interest and capital allowances and related adjustments
Do businesses not affected by CIR need to do anything?
If the net interest and financing costs of your business or group of businesses are less than £2 million, there is no need to submit a CIR return. However, documents showing that you won’t be deducting more than £2 million in that period must be retained. If you wish, you may still appoint a reporting company who would then need to submit an abbreviated return to confirm there is nothing to restrict.
It is also possible to reduce any potential future restriction by carrying forward unused interest allowance up to a maximum of five years. To do this, the abbreviated return would need to be replaced by a full return for the relevant period. In other words, if there is any chance that CIR might be an issue in the next 5 years, file an abbreviated return.
Appointing a reporting company
The reporting company is responsible for submitting the CIR return, and must be:
- Subject to Corporation Tax in the UK
- An active entity
- Authorised by a minimum of 50%* of the active companies within a group to be the reporting company
*From 31 March 2026, the reporting company will need to be authorised by over 50% of the active companies within the group. This will need to be done for each period as the appointment of a reporting company will no longer rollover to later periods.
Once a reporting company has been appointed, a CIR return must be submitted for every account period, including situations where there is no interest restriction. If the appointment of a reporting company is cancelled and there is no interest restriction, a return will not need to be submitted.
Currently, HMRC must be informed electronically once a reporting company has been appointed, by either using commercial software or completing the online form. From 31 March 2026, this requirement will be removed, and disclosure will instead be made within the CIR return, which must be filed using commercial software as the free HMRC portal will close.
Penalties for failing to submit a CIR return
Fixed penalties for late filing:
- £500 for a return up to three months late
- £1,000 for a return which is over three months late
If an incorrect CIR return is submitted, a penalty of up to 100% of the extra tax which is owed in the corrected return might need to be paid. The value of the penalty which needs to be paid will be dependent on when HMRC were informed and the type of error. HMRC may be more lenient if they are informed of the error before they find it themselves.
From 31 March 2026, a £1,000 penalty will be placed upon businesses who fail to appoint a reporting company before submitting their CIR return.
We’re here to help
If you would like to discuss the Corporate Interest Restriction rules or require any advice tailored to your circumstances, please get in touch with a member of our specialist Corporate Tax team or speak to your usual Azets adviser.
