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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Loan relationships: computational rules: expenses allowed as debits


As with credits, the amounts relievable as debits on loan relationships are those that, when taken together, fairly represent, for the accounting period in question, the losses arising to it from its loan relationships and related transactions. In addition, the legislation sets out specific expenses that count as debits. These are the expenses that are incurred for the purposes of those relationships and transactions, and those incurred directly in the following ways listed in CTA09/S307(4). The examples below are not exhaustive or prescriptive.

| Legislation | Expense | Examples | || | 307(4)(a) | Bringing a loan relationship into existence | * arrangement fees with banks * fee or commission for a loan guarantee * DBERR fees for investing surplus cash in a liquidation | | 307(4)(b) | Entering into, or giving effect to, a related transaction | * broker’s fees on purchase or sale of existing securities * legal fees on the transfer of a security | | 307(4)(c) | Making a payment under a loan relationship or related transaction | * cost of making interest payments * early redemption penalties | | 307(4)(d) | Taking steps to ensure receipt of payments due under a loan relationship or related transaction | * solicitor’s fees incurred in pursuing a debt defaulter |

Pre-loan relationship and abortive expenses

In addition, CTA09/S329 allows pre-loan relationship expenses where the company incurs expenses which would be allowable as debits had it first entered into a loan relationship. For example, expenses of raising a loan, even if the loan is never brought into existence.

CTA09/S330 allows for an election, to be made within 2 years of the accounting period in which they are incurred, for the debits to be treated as a debit for the period in which trade commences, subject to the trade commencing within 7 years of the end of the accounting period. See CFM32100 for more details.

Not directly incurred

Examples of expenditure not incurred directly for the purposes of a loan relationship are

  • premiums for key person insurance or other insurance policies,
  • general investment advice.