HMRC has been consulting on Possible changes to income tax rules on interest to address problems in the application of the rules in this area. Of particular relevance to treasurers is the proposal to do away with the concept of annual interest (also known as yearly interest). Although this was being put forward as a simplification this is not the case. The ACT has explained that the existing rules provide an administrative convenience for large companies paying intra-group interest to subsidiaries that are non UK resident. This arises on many occasions, notably on the intra-group balances arising in a group operating a centralised cash pooling arrangement. Yearly interest should therefore be retained or an equivalent exemption included.
The ACT also commented that any changes to the listed Eurobond exemption should be carefully drafted so as not to affect the ability to pay gross interest on legitimate Eurobonds, even if those bonds are not actively traded.
