Taxation of loan relationships

Produced by Tolley

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

  • Taxation of loan relationships
  • Acceptable accounts
  • Trading v non-trading
  • Capitalised interest
  • Pre-trading financing costs
  • Debits and credits
  • Transitional adjustments relating to loan relationships
  • Non-market loans
  • Foreign exchange (FX) movements
  • Tax treatment of relevant debits and credits
    • More...

Taxation of loan relationships

The vast majority of companies will have loan relationships and so will need to consider how they are taxed under the loan relationship rules. There are also specific provisions dealing with relevant non-lending relationships and other deemed loan relationships.

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.

Profits arising from a company’s loan relationships are taxed as income, either as part of the company’s trading profit or as non-trading income. The tax treatment of loan relationships differs slightly depending on whether the loan relationship is for trading or non-trading purposes. Therefore, in order to determine the tax treatment of its loan relationships, it is first necessary for a company to establish the purpose of the loan. It will then go on to calculate the relevant debits and credits for the loan relationships.

This guidance note deals mainly with the computational and charging provisions in CTA 2009, ss 306–334 (Part 5, Chapter 3). For information on which items fall within the loan relationships regime, see the What is a loan relationship? guidance note. It also covers the specific rules governing connected parties, certain anti-avoidance provisions and disguised interest.

There are also 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 Corporate debt ― overview guidance note. It is important to note that the loan relationships regime takes precedence over other statutes unless there is an express provision to the contrary. In addition to adjustments under the regime itself, the amounts charged to tax are subject to the transfer pricing, thin capitalisation and the corporate interest restriction (CIR) provisions. An amount which is denied relief under these

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