These Regulations, enacted by HM Treasury, amend Part 8C of the Corporation Tax Act 2010, which imposes a 45% corporation tax rate on restitution interest paid by HMRC. The amendments primarily serve to exclude simple interest awarded at a rate equivalent to or lower than a statutory rate from this special tax charge and modify the time limit for assessing this tax, allowing assessments to be made later if payments are accounted for before a final determination has been reached.
Arguments For
Clarifies the scope of Part 8C of the CTA 2010 by excluding restitution interest calculated at statutory or lower simple interest rates, reducing the tax burden in such cases.
Adjusts the time limit for assessing tax chargeable on restitution interest, allowing HMRC more flexibility (up to 2 years after Condition B is met) to make assessments based on provisional settlements before final court determinations.
Ensures consistency in applying the special 45% corporation tax rate only to punitive or higher levels of restitution interest awarded, aligning with administrative efficiency.
Arguments Against
Introducing new exceptions or time limits might create administrative complexity for taxpayers needing to understand when Part 8C applies versus general tax rules.
Extending the assessment window, even under specific conditions related to unsettled cases, could increase uncertainty for businesses regarding their final tax liabilities over longer periods.
Modifying existing tax legislation through secondary legislation might be seen as circumventing broader parliamentary scrutiny on significant changes to corporation tax rules applied to specific types of interest payments.
The Treasury make these Regulations in exercise of the power conferred by section 357YW(1) of the Corporation Tax Act 20101.
The Treasury makes these Regulations using the legal authority granted under section 357YW(1) of the Corporation Tax Act 2010.
Citation and commencement
- These Regulations may be cited as the Corporation Tax Act 2010 (Part 8C) (Amendment) Regulations 2025 and come into force on 15th January 2026.
The official short title for these Regulations is the Corporation Tax Act 2010 (Part 8C) (Amendment) Regulations 2025.
They become legally effective starting January 15th, 2026.
Amendment of Part 8C of the Corporation Tax Act 2010 2. Part 8C of the Corporation Tax Act 20102 is amended in accordance with regulations 3 to 6.
Part 8C of the Corporation Tax Act 2010 is modified by the changes detailed in Regulations 3 through 6.
Exclusion of simple interest 3. In section 357YC (meaning of “restitution interest”)— (a) in subsection (4), after “simple interest at a” insert— “rate equivalent to or lower than a”, and (b) in subsection (5), after “simple interest at a” insert— “rate equivalent to or lower than a”.
This section amends Section 357YC, which defines "restitution interest." It adds phrases that exclude simple interest calculated at a rate that is the same as, or lower than, a defined statutory rate from the definition of restitution interest, affecting both subsections (4) and (5) of that section.
- In section 357YD (further provision about amounts included, or not included, in “restitution interest”)— (a) in subsection (1), in paragraph (b), after “simple interest at a” insert— “rate equivalent to or lower than a”, and (b) in subsection (2), after “simple interest at a” insert— “rate equivalent to or lower than a”.
This applies the same exclusion to Section 357YD, which provides further rules on what amounts are included or excluded from restitution interest.
The amendment ensures that simple interest at or below the statutory rate is similarly excluded when considering amounts under subsections (1)(b) and (2).
- In section 357YO (duty to deduct tax from payments of restitution interest), in subsection (4), after “simple interest at a” insert— “rate equivalent to or lower than a”.
Section 357YO deals with the requirement to deduct tax from restitution interest payments.
This change inserts the exclusion so that the obligation to deduct tax does not apply to simple interest calculated at a rate equivalent to or lower than the statutory rate under subsection (4).
Amendment of assessment time limit 6. In section 357YQ (assessment of tax chargeable on restitution interest), after subsection (1) insert— “(1A) An assessment under this section may be made at any time before the later of— (a) the end of the period of 2 years after the end of the accounting period in which Condition B in section 357YC is met, and (b) the end of any period within which the assessment may otherwise be made under any other provision of the Taxes Acts (within the meaning of section 118(1) of TMA 1970).”.
This modifies Section 357YQ concerning the time limits for assessing tax on restitution interest by inserting a new subsection (1A).
This new rule allows an assessment to be made before the later of two deadlines: two years after the accounting period where 'Condition B' (related to restitution interest triggering the rules) is met, or the time limit provided by any other relevant Taxes Act provision.
Two of the Lords Commissioners of His Majesty's Treasury Gen Kitchen Stephen Morgan at 1.50 p.m. on 1st December 2025
This section provides the authorization and signing details, indicating that Gen Kitchen and Stephen Morgan, acting as two Lords Commissioners of His Majesty's Treasury, signed the instrument on December 1, 2025, at 1:50 p.m.
Explanatory Note (This note is not part of the Regulations)
The Regulations amend Part 8C of the Corporation Tax Act 2010 (“CTA 2010”) which was inserted into the CTA 2010 by section 38(3) of Finance (No. 2) Act 2015. Part 8C applies a corporation tax rate of 45% to payments of restitution interest made by the Commissioners for His Majesty’s Revenue and Customs (“HMRC”).
Regulations 3 to 5 provide that Part 8C of the CTA 2010 does not apply to awards of simple interest that are at a rate equivalent to or lower than a statutory rate (which is defined by section 357YU(2) of the CTA 2010 as a rate equal to a rate specified for purposes relating to taxation in a provision in or made under an Act of Parliament).
Regulation 6 provides that an assessment of tax chargeable on restitution interest made under Part 8C of the CTA 2010 can be made at any time before the end of the period of 2 years after the end of the accounting period in which Condition B in section 357YC is met or the end of any period within which the assessment may otherwise be made under any other provision of the Taxes Acts, whichever is later. This provides that assessments can be made for adjustments made under sections 357YE and 357YH of the CTA 2010 where restitution interest is brought into account at a time before a court has made a final determination or before HMRC has entered into a final settlement to pay restitution interest.
A Tax Information and Impact Note covering this instrument will be published on the website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins.
This note explains that the instrument modifies Part 8C of the CTA 2010, which imposes a 45% corporation tax rate on restitution interest handled by HMRC. Regulations 3 to 5 exclude simple interest paid at a statutory or lower rate from this punitive tax treatment.
Regulation 6 clarifies that assessments related to this tax can be made up to two years after the condition for its application is met, or under existing tax timelines, whichever is later, allowing assessments even before final settlements or court rulings on the interest payment.