Corporate debt ― overview

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Corporate debt ― overview
  • Loan relationships
  • Withholding tax
  • Corporate interest restriction
  • Funding small businesses

The taxation of corporate debt in the UK is complex. There are several different sets of rules governing the amount and timing of tax deductions available for interest and other amounts relating to corporate debt. These include:

  • the loan relationships regime
  • transfer pricing requirements
  • the corporate interest restriction

Of these, the loan relationships regime only is likely to apply to the typical owner-managed business (OMB) and is outlined briefly below.

CTA 2009, s 295

The transfer pricing rules contain a number of exemptions such that, in practice, they are unlikely to apply to the typical small OMB. The rules do not apply to all small- and medium-sized enterprises (SMEs), ie enterprises with fewer than 250 employees and turnover of no more than EUR 50 million, or assets of no more than EUR 43 million. Dormant companies are also excluded from the regime. Although note that from 6 April 2019, the profit fragmentation rules may apply instead. These operate in a similar manner to the transfer pricing regime, and will ensure that where profits of a UK business are diverted to an offshore entity that pays little or no tax, the relevant amounts are brought back into charge to UK tax, either by disallowing expenses or by reattributing receipts to the UK business. These rules were specifically introduced to address the fact that the transfer pricing rules did not apply to SMEs. See the General principles ― companies guidance note.

TIOPA 2010, ss 165, 167

The corporate interest restriction rules only apply to companies with net interest expense in excess of £2 million.

Details of the more complex arrangements and corporate debt provisions that in practice will generally only apply to larger companies can be found in the corporate tax module, see

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