Taxation of loan relationships

By Tolley

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

Taxation of loan relationships
Introduction
Acceptable accounts
Debits and credits
Corporate interest restriction rules
Trading v non-trading
Relationships between connected parties
Anti-avoidance provisions

This document covers these in detail, along with the acceptable accounts, debits and credits; taxation reforms; transitional adjustments; foreign exchange movements; interest; corporate restriction rules; trading v non-trading; connected parties, anti-avoidance provisions; and loans for unallowable purposes.

This guidance note explains how companies are taxed in respect of their loan relationships and relevant non-lending relationships under CTA 2009, ss 292–569 (Parts 5, 6). In particular, it considers the computational and charging provisions in CTA 2009, ss 306–334 (Part 5, Chapter 3).

For information on which items fall to be taxed under the loan relationship regime, see the Loan relationships ― scope and definitions guidance note.

There are other rules relating to the taxation of corporate debt which must also be considered. For an overview of these rules and links to further guidance, see the Overview of provisions relating to corporate debt guidance note.

HMRC’s own guidance on the loan relationship rules is set out in some detail at CFM30000.

Finally, following the OECD’s work on Base Erosion and Profit Shifting (BEPS), there have been significant changes to the UK loan relationships regime under the corporate interest restriction (CIR) provisions that restrict the amount of interest that can be deducted for corporation tax purposes from 1 April 2017. See below for further details.

Introduction

Companies are generally taxable on the debits and credits that are recognised in their statutory accounts in respect of their loan relationships and related transactions. The legislation is specific about the debits and credits that are taxable, and the basis of the accounts that they are drawn from. These concepts are discussed further below.

The term ‘loan relationship’ is closely defined and is discussed in detail in the Loan relationships ― scope and definitions guidance note. It includes ‘relevant non-lending relationships’ and certain other financing arrangements which are deemed to be loan relationships for tax purposes. In these cases, only certain debits and credits are within the scope to tax.

The term ‘related transaction’ is defined in CTA 2009, s 304 as a disposal or acquisition (in whole or in part)