CFM33060 - Loan relationships: Core rules: expenses

CTA09/S306A(1)(c)/(2)

Only certain qualifying expenses are within the scope of the loan relationship rules, and therefore potentially eligible for relief under the regime.

Expenses must be incurred by a company under or for the purposes of its loan relationships and related transactions.

In addition, the expenses must be incurred directly in the following ways:

 

Bringing a loan relationship into existence arrangement fees with banks fees or commission for a loan guarantee

Legislation Expense Examples
306A(2)(a)  Bringing a loan relationship into existence

arrangement fees with banks
fees or commission for a loan guarantee

306A(2)(b) Entering into, or giving effect to, a related transaction

broker’s fees on purchase or sale of existing loan
legal fees on the transfer of a loan

306A(2)(c) Making a payment under a loan relationship or related transaction

cost of making interest payments
early redemption penalties

306A(2)(d) Taking steps to ensure receipt of payments due under a loan relationship or related transaction solicitor’s fees incurred in pursuing a debt defaulter

 

Not directly incurred

Examples of expenditure not incurred directly for the purposes of a loan relationship would include, for example:

  • premiums for key person insurance or other insurance policies
  • general investment advice

Pre-loan relationship and abortive expenses

Expenses that arose in respect of a loan relationship can be taken into account, even if they are incurred before the company became a party (CTA09/S329). The same applies to abortive expenditure where the company fails to become a party.

To be taken into account the expenses must otherwise meet the requirements to be within the scope of the loan relationship rules.

Further guidance

Related transaction

A 'related transaction' is essentially the disposal or acquisition of the loan relationship or a variation in its terms - see CFM31120.

Pre-trading expenses

CTA09/S330 allows for an election, to be made within two years of the accounting period in which they are incurred, for the debits to be treated as a debit for the period in which trade commences, subject to the trade commencing within seven years of the end of the accounting period. See CFM32100 for more details.