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HMRC internal manual

Corporate Finance Manual

Debt Cap: the available amount: late interest mismatches

This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

Late Interest

Where interest is due to a creditor with whom the debtor is connected and the creditor is not within the charge to corporation tax, for example because it is non-resident, then the accrued interest is not allowed as a loan relationship debit for the debtor until it is paid if the interest is paid later than 12 months from the end of accounting period in which it accrues. (CTA09/PT5/CH8).

For debt cap the computation of the tested expense amount is partly by reference to the loan relationship debits in a UK company’s accounts so where a company pays the interest late this will create a mismatch between the tested expense amount and the available amount.

Regulations 5 to 8 of the Mismatch Regulations deals with this by including within the available amount the amount of the debit for the year in which it is paid to the extent that it is not already included within the available amount. Although the Regulations refer to amounts brought into account as loan relationships under CTA09/PT5 in practise they also include loan debits under CTA09/PT3 (trading income).

Further details on late interest can be found at CFM35800 onwards. Note that the late interest rules contained in CTA09/S374 and S377 were repealed by Finance Act 2015. The rules therefore no longer apply with effect in relation to debtor relationships entered into by a company on or after 3 December 2014; and in relation to debtor relationships entered into by a company before 3 December 2014, where the interest accrued in a relevant period begins on or after 1 January 2016. There are transitional rules in respect of amounts of ‘late interest’ previously accrued.