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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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UK residents with foreign income or gains: corporation tax: Loan relationships: relief for foreign tax: identification of UK tax: Example 1

The profit exceeds the amount of the credits relating to interest which has suffered foreign tax:

A company has a profit of £1,000 after taking account of credits of £500 relating to interest which has suffered foreign tax (see note (i) below), credits of £600 relating to interest which has not suffered foreign tax, other credits of £800 and debits of £900.

For the purpose of allowing credit relief in respect of the foreign interest of £500 the computation is restated to show UK tax chargeable on the credits of £500 + £600 + £800 and to show separately debits of £900 which are then treated as available to be set against profits of any description for that accounting period under TIOPA10/S52. Taking account of other profits for the accounting period the result would be as follows:

  Trade Loan Relationships   Property Income Foreign dividend Total
             
Profits 2,000 1,000   500 1,000 4,500
Restated as Trade Loan Relationships (i) Other Loan relationships Property Income Foreign dividend Total
Profits 2,000 500 1,400 500 1,000 5,400
less Loan Relationship debits (ii)     (900)     (900)
  2,000 500 500 500 1,000 4,500

Notes:

i) the loan relationship credits relating to interest which has suffered foreign tax are kept separate from the other loan relationship credits and from the loan relationship debits. This enables Corporation Tax to be calculated by reference to the amount of £500 and the foreign tax can then be credited against that Corporation Tax. If the amount of £500 is made up of a number of interest credits which have suffered foreign tax at different rates it will be necessary to show each credit separately so that relief for the foreign tax is calculated item by item.

ii) the loan relationship debits may be set against profits of any description (not necessarily against loan relationship credits in priority to other profits); and different amounts of the debits may be set against different profits. In this example the company does not set any part of the debits against the trade profits or the foreign dividend which may themselves have suffered foreign tax.