Late interest payment rules may break treaty
1 Sep 08
HMRC has acknowledged that the UK’s rules on late payment of interest may contravene EC treaty freedoms
HMRC has acknowledged that the UK’s rules on late payment of interest may contravene EC treaty freedoms.
The issue has arisen because borrowings from non-UK resident companies are treated differently from borrowings from UK resident companies, which appears to render the rules inconsistent with EU principles.
A consultation document detailing its options when challenging the law has been issued in an attempt to put the matter beyond doubt.
Legislation is expected to be drafted for inclusion in a future Finance Bill following the consultation process. In the meantime, HMRC has announced that it will not seek to apply the late payment rules to claims for interest relief by UK borrowing companies where the lender is a non-UK-connected company during accounting periods ending before the law is amended.
It is believed that a number of UK companies will now consider accelerating claims for tax relief for connected party interest (claiming a deduction when the interest expense is recognised in their accounts), rather than applying the late payment rules. This applies to all tax returns submitted after 28 July or to any other accounting period before the law is changed.
It is thought that companies affected will consider amending prior year tax returns (resubmitting returns on the basis that the late payment rules do not apply) and claim a refund of previously paid corporation tax and renegotiating enquiries where returns are currently open.
The situation presents companies with a number of tax planning opportunities, including the possibility of claiming repayments on previously paid corporation tax.