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HMRC internal manual

Corporate Finance Manual

Loan relationships: computational rules: credits and debits not brought into account: imported losses: application

Imported losses: not subject to UK taxation

CTA09/S327(3) refers to a time when the company would not have been chargeable to tax in the UK on any profits or gains arising from a loan relationship.

For example, if the company

  • is not UK resident, or
  • although trading through a UK branch, the loan relationship is not held for the purposes of the branch

the profits or gains are not taxable in the UK.

Taxable in principle

Profits or gains are chargeable to tax in the UK as long as they are taxable in principle, even if no actual tax would be paid on those amounts because of expenses, group relief etc. This includes interest paid. For most borrowers, where the loan is redeemed at par, the only amount brought into account in respect of their debtor loan relationship will be debits for interest and any other expenses. It is unlikely that there would be a profit. This does not mean that profits and gains are not chargeable in the UK. The legislation will therefore treat the interest as a debit to be restricted where appropriate.

Amount to disallow

CTA09/S327(2) is a common sense rule - any loss arising when the loan relationship is not chargeable to UK tax is disallowed. For example, a debt may become bad when the company is non-UK resident during the early part of the period of account. If the company

  • becomes resident during the course of that period of account, and
  • recognises the loss at the end of it,

S327(2) disallows the loss in the first accounting period when the company is UK resident.

No relief under any other provisions

S327(6) makes it clear that any amounts disallowed under S327 cannot be relieved under any other corporation tax provisions.