The government has confirmed in the Autumn Statement it is to press ahead with the introduction of restrictions to interest deductibility for corporates
Under the regime, part of the UK’s efforts in the OECD’s Base Erosion and Profit Shifting (BEPS) project, there will be a limit to the tax deductions large groups can claim for their UK interest expenses from April 2017.
The rules will limit deductions where a group has net interest expenses of more than £2m, net interest expenses exceed 30% of UK taxable earnings and the group’s net interest to earnings ratio in the UK exceeds that of the worldwide group.
The government will widen the provisions proposed to protect investment in public benefit infrastructure. Banking and insurance groups will be subject to the rules in the same way as groups in other industry sectors.
There had been calls to defer to move as far ahead as 2019 given the economic and political volatility caused by Brexit and the change in government.
Jonathan Hornby, managing director at Alvarez & Marsal Taxand, said: ‘The UK’s attractiveness as a location for foreign investment is already suffering as a result of Brexit and given that these measures further damage our competitiveness we would have preferred to see them deferred until the dust has settled.’
Despite those concerns, PwC international tax partner Stella Amis said business ‘had pretty much accepted things were going this way’.
‘The focus needs to be creating clear and workable rules so as not to detract from the message that the UK remains open for business,’ she said.