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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Specific deductions - interest: to be treated as a trading loss

This chapter applies for Income Tax purposes to the computation of trade profits and property income. References in the text to a ‘business’ should therefore be taken to include both trades and property businesses. The chapter does not apply for Corporation Tax purposes, where there are separate rules in the loan relationships legislation (see CFM11000).

S94 Income Tax Act 2007 (ITA 2007)

Where interest relief is claimed under the provisions of S383 ITA 2007 and:

(a) the interest for which relief is claimed is an expense wholly and exclusively incurred for the purposes of a trade, and

(b) the income of the tax year in question is insufficient to allow relief to be given in full for that interest,

the unrelieved amount may be treated in one of the following ways:

  • carried-forward as if it were a trade loss carried forward, or
  • treated for the purposes of terminal loss relief as a loss sustained at the date of payment.

The section applies to interest which would have been allowable as a trade expense if it were not allowable under Section 383 rules. The interest paid in those cases would have been taken account of in calculating the profit or losses of the trade.

Cases of difficulty should be referred to CTISA (Technical).