The cap on tax-allowable interest for UK businesses needs to be urgently reviewed as companies are squeezed from a tax and interest perspective

Blick Rothenberg are calling on the Government to urgently review the cap on tax allowable interest relief for UK businesses.

Corporate Tax Partner Neil Insull said: “The cap on corporate tax interest relief – which can disallow tax relief on interest payments above a £2m threshold – means that many more UK companies will be squeezed from a tax perspective over the coming years, thanks to the rapid increase in interest rates.

“When the cap was introduced in 2017, given the very low interest rates which companies had access to at that time, a business could conceivably get full tax relief on business debt in excess of £60m. In contrast, with interest rates having tripled in the last one to two years, that same business may only get corporate tax relief on borrowings of say only £20m.

“Given that most businesses use debt simply to expand or to invest in new premises or equipment, it appears illogical that the Government is now not allowing them to get full corporate tax relief for that investment. Especially as the £2m cap figure, when introduced, was set with no clear rationale other than as a crude attempt to copycat other European tax regimes. In today’s economy, however, I have no doubt at all that it has seriously expired its ‘use by’ date.

“At a time when the UK Corporation Tax rate has risen to 25%, businesses will legitimately feel that this is yet another ‘heads HMRC wins, tails I lose’ situation. However, this is not the type of scenario which the UK Government needs to encourage if it genuinely wants UK Plc (and the wider voting population) to prosper.”

Would you like to know more?

If you would like to discuss the above, please get in touch with your usual Blick Rothenberg contact or with Neil Insull using the form below.