Overview of provisions relating to corporate debt

By Tolley

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

  • Overview of provisions relating to corporate debt
  • Loan relationships
  • Connected party relationships
  • Transfer pricing and thin capitalisation
  • Corporate interest restriction
  • Worldwide debt cap
  • Withholding tax
  • Other provisions
  • Further reading

This guidance note provides an introduction to the provisions governing the taxation of debt for UK companies and also provides links to more detailed guidance notes dealing with those provisions.

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
  • the corporate interest restriction (CIR) rules from 1 April 2017
  • transfer pricing and thin capitalisation requirements
  • the worldwide debt cap (WWDC) limitations before 1 April 2017 (incorporated in modified form into CIR from 1 April 2017)
  • a range of associated anti-avoidance measures ― it should be noted that there are regime anti-avoidance rules (RAARs) in CTA 2009, ss 455B–455D and related sections with effect from 18 November 2015 for loan relationships and in TIOPA 2010, s 461 applicable to the CIR

It should also be remembered that payments of interest by a UK company on all liabilities capable of remaining outstanding for more than one year are subject to withholding tax, unless they are expressly exempt or qualify for relief.

Loan relationships

In most instances, a company’s financing costs and income are taxed or relieved under the loan relationships regime. The provisions are in CTA 2009, ss 292–476 (Pt 5). Relief is only available where the cost attaches to the company’s own loan relationships or a balance which is deemed to be a loan relationship for tax purposes.

See the Loan relationships ― scope and definitions guidance note.

A loan relationship exists where a company stands in the position of debtor or creditor in respect of a money debt that arises from a transaction for

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