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HMRC internal manual

Corporate Finance Manual

Loan relationships: computational rules: amounts treated as interest

Interest specifically included

The loan relationships rules include interest on a debt that is not a loan relationship because there has been no lending of money. CFM41000+ explains the rules on amounts treated as loan relationships. They include

  • interest-bearing trade debts,
  • judgement debts,
  • late payment interest on completion, for example on land or share sales
  • tax debts and amounts of tax repayments due
  • repo price differentials
  • imputed interest under ICTA88/SCH28AA (CTA09/S484)
  • returns from alternative finance arrangements, which are equivalent to interest.

Particularly in periods of account beginning on or after 1 January 2005, however, the company accounts may not specifically distinguish between profits or losses within CTA09/S307(3)(a), and interest and expenses within CTA09/S307(3)(b) and (c). Where the company uses an effective interest rate method (CFM21640), interest, discount and expenses may all be spread over the life of the loan relationship, and only a single figure may appear in the profit and loss account.

‘Interest’ in CTA09/S307 includes only actual amounts of interest accruing in accordance with the terms of a loan relationship. It does not include other amounts included in ‘effective interest’. References in other CT provisions to ‘interest’ similarly refer only to actual interest.

Interest characterised as a distribution

CTA09/S465 excludes interest or discount characterised as a distribution by ICTA88/S209 from the loan relationships rules.