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HMRC internal manual

International Manual

UK residents with foreign income or gains: corporation tax: Loan relationships: provisional relief

The approach described in INTM167160 may result in foreign tax being relieved for an accounting period earlier than the one in which the interest is paid and the foreign tax is suffered. In strictness relief may not be claimed until the foreign tax has been paid.

Tax specialists should use their judgement in responding to claims that credit relief should be allowed, or TIOPA10/S112 should be applied, for an appropriate amount of foreign tax before the interest is paid and the foreign tax is suffered. It should be made clear to the company that in such a case

  • regard will be had to the expected rate of foreign tax that will be suffered (including, where relevant, the maximum rate provided for in a double taxation agreement)
  • the relief for the earlier accounting period can be given only on a provisional basis
  • if credit is to be allowed, a formal claim will be required within the statutory time limit mentioned in INTM167160 after the foreign tax has been paid, and
  • evidence that foreign tax has been paid may also be requested (INTM162520).

Tax specialists should ensure that relief (whether by credit or deduction) given on a provisional basis is withdrawn if the foreign tax is not paid within a reasonable time - say 24 months - after the end of the accounting period for which the relief is given, whether or not the amount of the interest receivable is the subject to relief under CTA09/S324, Restriction on debits resulting from revaluation.

If a payment of interest is received late it should generally be assumed that it is in respect of the earliest unpaid liability for interest in respect of that loan relationship.

If an amount of interest receivable is the subject of bad debt relief but is subsequently recovered, or the amount of a provision in respect of the interest is reduced or eliminated, the interest (or the appropriate part of it as relevant) should be treated as brought into account as a credit in the accounting period in which the recovery is made or the provision is reduced or eliminated. This is then the accounting period for which credit may be claimed or a deduction given for the foreign tax, if any, that is paid on the interest when it is received.

The approach to relief for foreign tax on a provisional basis described above is relevant also where the mark to market basis is used as described in INTM167180.