CIR – HMRC change their approach to appointing reporting companies

HMRC have published new guidance setting out a more restrictive approach on when they will use their powers to appoint a reporting company

HMRC CIR reporting company change

HMRC have discretionary powers to appoint a reporting company for the Corporate Interest Restriction (CIR) rules where a worldwide group has missed the deadline for a particular period of account. In practice HMRC have used this discretion to appoint a reporting company where groups have failed to make a valid appointment of a reporting company. On 14 June 2023 HMRC published new guidance indicating they will take a much more restrictive approach to using these powers, potentially using them only where it is to HMRC’s benefit.

HMRC’s previous approach to appointments

Under previous guidance (now removed) HMRC had said that if a group missed the deadline for appointing a reporting company, HMRC may make the appointment for the group but would want to understand why the group failed to appoint the reporting company within the time limit. For example, they noted they would consider making use of their powers where there is an unforeseeable change in circumstances or other reason outside the group’s control.

HMRC’s new approach

In Issue 109 of Agent Update, published on 14 June 2023, HMRC published guidance clarifying the circumstances in which they would be prepared to exercise their powers to appoint a reporting company. HMRC will no longer appoint a reporting company simply because a group missed the deadline (or failed to make a valid appointment) but will continue to use their power to appoint a reporting company where there is a risk that tax is at stake.

Where a CIR disallowance arises for a period of account and no reporting company has been appointed, then (broadly) a calculation is still required to apportion the CIR disallowance between the UK members of the worldwide group. One example where HMRC might use their powers is if they wished to enquire into the group’s CIR position, i.e. appointing a reporting company and enquiring into the CIR position may be administratively simpler than opening enquiries into multiple group entities’ CT returns.

Why might groups appoint a reporting company?

Appointing a reporting company provides a number of potential benefits under the CIR rules, including the ability to determine how CIR disallowances are allocated between companies, carrying forward unused allowances, and making certain elections. These are offset against the compliance burden of making the appointment and filing full or abbreviated CIR returns. 

Points to check

Groups without a reporting company should consider if there would be a net benefit to appointing one, factoring in not just the current group position but how this might change in the future (as the ability to carry forward unused allowances could provide cash tax savings depending on the group’s tax profile).

For groups that have a reporting company appointed, the position should be reviewed to confirm the reporting company appointment still has effect. There are a number of requirements for the appointment to be valid. In addition, changes in the group structure can result in a group ceasing to have a reporting company (due to the worldwide group changing for CIR purposes). Where a group does not have a validly appointed reporting company this may invalidate any CIR returns filed by the group.