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HMRC internal manual

Business Income Manual

Private Finance Initiative (PFI): interest: non-trade

S299-S301, S320 Corporation Tax Act 2009

For Corporation Tax purposes, where a company is a party to a loan relationship otherwise than for the purposes of a trade carried on by it, interest payable under that relationship is not brought into account as an expense of any trade. Nor is it treated as an expense of a property business. It is a non-trading debit under the loan relationship legislation.

The non-trading debits and credits in respect of a loan relationship are aggregated with all other debits and credits arising from a company’s non-trading loan relationships and non-trading derivative contracts.

An overall net surplus is charged to tax as non-trading loan relationship profits. An overall net deficit, i.e. a ‘non-trading deficit’, may be relieved in a variety of ways (see CFM32040 onwards).

An interest debit in an accounting period in respect of a loan relationship is taken into account, whether posted to a fixed capital asset, a financial asset, or the profit and loss account.

Relief is normally available for Corporation Tax purposes when a non-trade interest debit is made:

  • to the profit and loss account and is not subsequently capitalised (see example 1 at BIM64305), or
  • when a non-trade interest debit is made to a finance debtor, or capitalised to a finance debtor, and is then matched against income credited to the finance debtor.

The one exception is where the non-trade interest is debited, or capitalised, to a fixed capital asset or project. Such a debit is to be brought into account for Corporation Tax purposes in the accounting period for which it is given, in the same way as a debit is given in determining the profit or loss for that period (see example 2 at BIM64310). We accept that where a PFI property is a fixed asset for tax purposes it falls within the definition of ‘fixed capital project’, whether reported as a fixed asset or a financial asset for accounting purposes (see example 3 and 4 at BIM64315 and BIM64320).

Where the company is constructing a property as part of a property business and carrying on a trade, the purpose of the loan will determine whether the interest is a trading debit, a non-trading debit, or is to be apportioned between the two.