Changes to tax rules on late interest payments creates window
of opportunity for companies
With the date of the PBR announced as barely a month before Christmas, will there be nice surprises in our stockings this year, or will we have to make do with a lump of coal and a "Bah Humbug"?
Click here for details...
Monday 11 August 2008
Changes are being made to the corporation tax
rules for deducting interest payable to an overseas connected
company. What are the changes and could your company obtain a tax
advantage?
What are the existing rules?
The existing rules for deducting interest payable to an overseas
connected company deny an immediate deduction for interest accrued
if the interest is not paid until more than 12 months after the end
of the accounting period. Instead such interest is deducted in the
period in which it is paid.
What are the changes?
Following recent decisions in the European Court of
Justice, HM Revenue and Customs (HMRC) has accepted the
existing rules cannot be maintained and has issued a consultation
document to consider how the law should be changed. As interim
measure, HMRC has announced that it will cease to apply the
existing rules where the creditor company is not UK resident for
returns submitted between 28 July (the date after the announcement)
and for accounting periods ending before any new legislation is
passed.
It is anticipated that any new rules will be included in the
Finance Bill 2009 at the earliest. This presents an opportunity to
claim deductions that might otherwise have been postponed.
Who can take advantage of this opportunity?
If you are a company that has a loan from an overseas connected
company and you are not paying the interest on the loan you
should:
- claim a deduction in accounting periods ending before the law
changes
- seek to have enquiries closed into deductions that have already
been claimed
- consider amending 'open returns' to claim deductions.
Open returns means returns either under enquiry or for which the
accounting period ended within the past two years.
As the current proposals are essentially a concession at this
stage, taxpayers are not obliged to apply them and should be able
to prepare their computations according to the legislation. Those
who do not want to accelerate a deduction may therefore continue to
claim on a paid basis under the late interest rules until such time
as the legislation has been changed.
David Hill, a Client Service Director at Grant Thornton says:
"This announcement by HMRC has created a window of opportunity for
companies to gain a tax advantage by claiming an appropriate
deduction in their tax return. However other opportunities may
exist as a result of these interim measures and you should
therefore seek professional advice to determine exactly how your
company may be affected by the changes."
Please click here to contact us if
you would like further advice on any of the above.