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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Loan relationships: computational rules: key principles

Key principles

The computational rules for loan relationships are set out in CTA09/PT5/CH3. The key principles are that the amounts to be brought into the corporation tax computation are the ‘credits and debits’ which

  • taken together, ‘fairly represent’ the company’s profits and losses from its loan relationships, and
  • are computed in accordance with generally accepted accounting practice (GAAP).

The ‘fairly represents’ rule applies to the computation of both credits and debits. CFM33020 to CFM33060 explains the significance of the rule, and the types of profits, losses and expenses that are to be brought in. The rules also allow for debits for pre-trading expenditure.

Following the accounts

CFM33070+ explains the requirement that the credits and debits are to be computed in accordance with GAAP. The credits and debits brought into account are not restricted to those reflected in the profit and loss account, and do not distinguish between capital and revenue items. There are qualifications to the ‘follow the accounts’ principle where the accounts do not comply with GAAP or where amounts are not fully recognised in the accounts. There are rules to cover cases which do not follow GAAP and for changes in accounting practice.

Certain credits and debits are not brought in

In certain cases, such as those involving insolvency, impairment, or where a company ceases to be party to a loan relationship, there are restrictions on the credits and debits to be brought into account for tax purposes. CFM33180+ has more on this.

Exchange gains and losses

CTA09/S328 specifically includes exchange gains and losses arising from a loan relationship in the computation of credits and debits, but only those recognised in the profit and loss account or income statement. Certain exchange gains and losses are excluded from the computation of credits and debits by the Disregard Regulations. See CFM57000.