The corporate interest restriction caps how much interest expense UK companies can deduct against taxable profits: broadly, 30% of tax-EBITDA, for groups whose UK net interest costs exceed £2 million a year. Below the £2 million de minimis the regime asks nothing of you; above it, deductions can be disallowed, an annual return may be needed, and a body of carry-forward mechanics decides whether disallowed interest is lost or merely parked. Introduced for the OECD's BEPS project, CIR was designed for multinationals — but the £2 million line is fixed, inflation has done its work, and mid-market groups with ordinary bank debt now cross it routinely without anyone flagging the consequences.
How the restriction is calculated
The regime works at group level, on the worldwide group's UK members together. The basic limit is the fixed ratio: deductible net interest capped at 30% of the group's UK tax-EBITDA — taxable profits before interest, capital allowances and a few adjustments — subject to a debt cap that stops UK deductions exceeding the worldwide group's actual net external interest. Genuinely highly-leveraged groups can elect the group ratio instead, substituting the worldwide group's own interest-to-EBITDA ratio where that exceeds 30% — the escape valve for private-equity structures and infrastructure, whose external gearing is real rather than engineered. A separate public infrastructure exemption can take qualifying limited-recourse infrastructure interest out of the regime entirely.
Two features soften the arithmetic across time: disallowed interest carries forward indefinitely, reactivating automatically in later periods with spare capacity, and unused interest allowance carries forward five years — so a group with a bad EBITDA year can reach back to earlier headroom, provided the returns were filed to bank it. That proviso is the operative catch: the carry-forwards are administered through the CIR return machinery, and groups that never engaged with it lose flexibility they did not know they had.
The administration — recently made lighter
Historically every group in the regime was expected to appoint a reporting company (within twelve months of the period end) and file an interest restriction return annually, nil position or not, with £500–£1,000 late-filing penalties. For periods of account ending on or after 31 March 2026 the administration has been sensibly pruned: the appointment is made through the return itself with no separate deadline, and a return is required only where it actually does something — allocating a disallowance, banking or using carried-forward allowance, reactivating interest, or making elections. Groups comfortably inside their limits can now stay compliant with far less ceremony — though the calculation still has to be done to know that, and a group that skips the return in a capacity year forfeits the five-year allowance it could have carried.
Who gets caught in practice
The textbook targets are multinationals with intra-group leverage, but the groups arriving in our CIR work look more ordinary: UK property groups whose development debt crossed £2 million of annual interest; acquisitive trading groups stacking vendor loans and bank facilities; private-equity portfolio companies whose shareholder debt was priced for tax deduction; and businesses whose floating-rate interest simply doubled with rates while EBITDA did not. Note also the ordering: transfer pricing comes first — interest must survive the arm's-length test before CIR even looks at it, so connected-party debt faces two gates (the old thin-capitalisation question in modern clothes), and fixing the pricing does not immunise the quantum.
The planning levers are unglamorous and effective: monitor the £2 million line group-wide (including capitalised and connected-party interest — the definition is broader than the bank statement); model CIR into acquisition and refinancing structures before signing, not after; elect group ratio where the worldwide gearing supports it; and keep the return discipline that preserves carry-forwards. Where a disallowance is structural rather than cyclical, the answer usually lies in the capital structure itself — equity versus debt, where the borrowing sits — which is a conversation worth having at the refinancing table.
Keeping it managed
CIR belongs on the annual corporation tax checklist of every group with meaningful borrowing: a capacity calculation each year, the return filed where it earns its keep, carry-forwards tracked like the assets they are, and the position papers kept for the debt that enquiries ask about. Acumon runs this alongside corporation tax compliance for mid-market and larger groups, with international tax handling the group-ratio and cross-border layers. If your group's interest bill has crossed seven figures and nobody has said the letters C-I-R out loud, the capacity calculation is overdue — and occasionally it comes with the pleasant surprise of allowances worth banking.