CFM32010 - Loan relationships: taxing and relieving provisions: overview

Overview

The method of taxing loan relationships is set out in CTA09/PT5/CH1.

A company is taxed on its ‘credits’ and ‘debits’ arising from its loan relationships and related transactions. CFM33000 explains how the ‘credits’ and ‘debits’ are computed.

Trading credits and debits

The debits and credits from a loan relationship to which it is party for the purposes of a trade are brought into account in calculating the profits of the trade. This means that they are treated as receipts and expenses of the trade for the accounting period in which they arise.

Non-trading credits and debits

The debits and credits from non-trading loan relationships are aggregated. A net non-trading profit from loan relationships is taxed as part of the company’s income for the accounting period in which it arises.

A net non-trading loss from loan relationships is relieved as non-trading loan relationship deficit.

Such deficits can be:

  • carried forward against profits of later accounting periods CFM32040
  • set off against profits of any kind of the deficit period CFM32060
  • set off against non-trading profits arising within the previous 12 months CFM32070
  • surrendered as group relief CFM32090

The methods by which a non-trading deficit can be relieved depend on the accounting period in which the deficit arises:

  • CTA09/PT5/CH16 applies for pre-2017 deficits which are deficits arising in an accounting period that begins before 1 April 2017
  • CTA09/PT5/CH16A applies for post-2017 deficits which are deficits arising in an accounting period that begins after 1 April 2017

In particular, deficits that arose before 1 April 2017 can only be carried forward against non-trading income whereas deficits arising after 1 April 2017 can typically be carried forward against any kind of profit.

Loss restriction

Carried forward losses can now be subject to the loss restriction rules - see CFM32040 for further details. This applies from 1 April 2017, including in respect of losses which arose before that date.