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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Loan relationships: computational rules: other types of profits and losses on loan relationships

Profits and losses on loan relationships

Profits or losses, other than interest, may arise either as a result of the terms of a loan relationship or from the way in which the company accounts for it, or they may arise from a related transaction (essentially the disposal or acquisition of the loan relationship - see CFM31120). Examples of profits or losses within the loan relationships rules are:

  • a profit or loss realised on the sale or other disposal of a debt asset, or on the novation of a debt liability;
  • the release of all or part of a debt, which will give rise to a profit for the debtor and a loss for the creditor;
  • changes in the fair value of a loan relationship that is accounted for on a fair value or mark to market basis;
  • discounts or premiums that are brought into account on an accruals or amortised cost basis, either by the creditor (representing a gain) or by the debtor (representing a loss);
  • an impairment loss or bad debt provision made by a creditor who accounts for debt on an accruals or amortised cost basis, or the reversal of such a provision.


Brown Ltd owns a security with a nominal value of £40,000. The company paid £37,000 for it, receives interest of £500 in year 1, then sells it to a securities trader for £36,000.

The interest and discount it accrues are credits, and the loss on sale is a debit.