|
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How profits and deficits from loan relationships are dealt with |
| |
295 | General rule: profits arising from loan relationships chargeable as income |
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(1) | The general rule for corporation tax purposes is that all profits arising to a |
| |
company from its loan relationships are chargeable to tax as income in |
| |
accordance with this Part. |
| 5 |
(2) | But see section 465 (exclusion of distributions except in tax avoidance cases). |
| |
296 | Profits and deficits to be calculated using credits and debits given by this Part |
| |
Profits and deficits arising to a company from its loan relationships are to be |
| |
calculated using the credits and debits given by this Part. |
| |
297 | Trading credits and debits to be brought into account under Part 3 |
| 10 |
(1) | This section applies so far as in any accounting period a company is a party to |
| |
a loan relationship for the purposes of a trade it carries on. |
| |
(2) | The credits in respect of the relationship for the period are treated as receipts |
| |
of the trade which are to be brought into account in calculating its profits for |
| |
| 15 |
(3) | The debits in respect of the relationship for the period are treated as expenses |
| |
of the trade which are deductible in calculating those profits. |
| |
(4) | So far as subsection (3) provides for any amount to be deductible, it has effect |
| |
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(a) | section 53 (capital expenditure), |
| 20 |
(b) | section 54 (expenses not wholly and exclusively for trade and |
| |
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(c) | section 59 (patent royalties). |
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(5) | This section is subject to— |
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(a) | section 330 (debits in respect of pre-trading expenditure), |
| 25 |
(b) | section 482(1) (under which credits or debits to be brought into account |
| |
under Chapter 2 of Part 6 (relevant non-lending relationships) are |
| |
treated as non-trading credits or debits), and |
| |
(c) | section 494(2A) of ICTA (under which some credits and debits affecting |
| |
ring-fence profits from petroleum extraction activities are treated as |
| 30 |
non-trading credits and debits). |
| |
298 | Meaning of trade and purposes of trade |
| |
(1) | For the purposes of this Part a company is taken to be a party to a creditor |
| |
relationship for the purposes of a trade it carries on only if it is a party to the |
| |
relationship in the course of activities forming an integral part of the trade. |
| 35 |
(2) | For the meaning of “creditor relationship”, see section 302(5). |
| |
(3) | For the purposes of this Part activities carried on by a company in the course |
| |
| |
| |
| |
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|
| |
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(b) | any mutual insurance or other mutual business which is not life |
| |
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(c) | any basic life assurance and general annuity business, |
| |
| are treated as not constituting the whole or any part of a trade. |
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(4) | Subsection (3) applies for the purposes of any other relevant enactment as it |
| 5 |
applies for the purposes of this Part. |
| |
(5) | In subsection (4) “relevant enactment” means so much of any enactment as |
| |
contains provision by reference to which amounts are to be brought into |
| |
account for the purposes of this Part. |
| |
299 | Charge to tax on non-trading profits |
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(1) | The charge to corporation tax on income applies to any non-trading profits |
| |
which a company has in respect of its loan relationships. |
| |
(2) | For the meaning of a company having such profits and how they are |
| |
calculated, see section 301. |
| |
300 | Method of bringing non-trading deficits into account |
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(1) | Any non-trading deficit which a company has from its loan relationships must |
| |
be brought into account in accordance with Chapter 16 (non-trading deficits). |
| |
(2) | For the meaning of a company having such a deficit and how it is calculated, |
| |
| |
(3) | This section and Chapter 16 apply even if none of the company’s loan |
| 20 |
relationships is regarded as a source of income as a result of this Part. |
| |
301 | Calculation of non-trading profits and deficits from loan relationships: non- |
| |
trading credits and debits |
| |
(1) | Whether a company has non-trading profits or a non-trading deficit from its |
| |
loan relationships for an accounting period is determined as follows, using the |
| 25 |
non-trading credits and non-trading debits given by this Part for the |
| |
| |
| |
(a) | “non-trading credits” means credits for any accounting period in |
| |
respect of a company’s loan relationships that are not brought into |
| 30 |
account under section 297(2), and |
| |
(b) | “non-trading debits” means debits for any accounting period in respect |
| |
of a company’s loan relationships that are not brought into account |
| |
| |
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(a) | section 330 (debits in respect of pre-trading expenditure), and |
| |
(b) | section 482(1) (under which credits or debits to be brought into account |
| |
under Chapter 2 of Part 6 (relevant non-lending relationships) are |
| |
treated as non-trading credits or debits). |
| |
(4) | A company has non-trading profits for an accounting period from its loan |
| 40 |
relationships if the non-trading credits for the period exceed the non-trading |
| |
debits for the period or there are no such debits. |
| |
| |
| |
|
| |
| |
(5) | The non-trading profits are equal to those credits, less any such debits. |
| |
(6) | A company has a non-trading deficit for an accounting period from its loan |
| |
relationships if the non-trading debits for the period exceed the non-trading |
| |
credits for the period or there are no such credits. |
| |
(7) | The non-trading deficit is equal to those debits, less any such credits. |
| 5 |
| |
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302 | “Loan relationship”, “creditor relationship”, “debtor relationship” |
| |
(1) | For the purposes of the Corporation Tax Acts a company has a loan |
| |
| 10 |
(a) | the company stands in the position of a creditor or debtor as respects |
| |
any money debt (whether by reference to a security or otherwise), and |
| |
(b) | the debt arises from a transaction for the lending of money. |
| |
(2) | References to a loan relationship and to a company being a party to a loan |
| |
relationship are to be read accordingly. |
| 15 |
(3) | For cases where this Part applies as if a relationship were a loan relationship |
| |
despite the money debt not arising from a transaction for the lending of money |
| |
see Chapter 2 of Part 6 (relevant non-lending relationships). |
| |
(4) | See also the following provisions of Part 6 (under which other matters are |
| |
treated as loan relationships or rights, payments or profits under loan |
| 20 |
| |
(a) | Chapter 3 (OEICs, unit trusts and offshore funds), |
| |
(b) | Chapter 4 (building societies), |
| |
(c) | Chapter 5 (industrial and provident societies), |
| |
(d) | Chapter 6 (alternative finance arrangements), |
| 25 |
(e) | Chapter 7 (shares with guaranteed returns etc), |
| |
(f) | Chapter 8 (returns from partnerships), |
| |
(g) | Chapter 9 (manufactured interest etc), |
| |
(h) | Chapter 10 (repos), and |
| |
(i) | Chapter 11 (investment life insurance contracts). |
| 30 |
(5) | In this Part “creditor relationship”, in relation to a company, means any loan |
| |
relationship of the company where it stands in the position of a creditor as |
| |
respects the debt in question. |
| |
(6) | In this Part “debtor relationship”, in relation to a company, means any loan |
| |
relationship of the company where it stands in the position of a debtor as |
| 35 |
respects the debt in question. |
| |
| |
(1) | For the purposes of this Part a money debt is a debt which— |
| |
| |
(i) | by the payment of money, |
| 40 |
| |
| |
|
| |
| |
(ii) | by the transfer of a right to settlement under a debt which is |
| |
| |
(iii) | by the issue or transfer of any share in any company, |
| |
(b) | has at any time fallen to be so settled, or |
| |
(c) | may at the option of the debtor or the creditor fall to be so settled. |
| 5 |
(2) | For the purposes of subsection (1) any option exercisable by either party to |
| |
settle the debt in any other way than is mentioned in subsection (1)(a) is |
| |
| |
(3) | A money debt is a debt arising from a transaction for the lending of money for |
| |
the purposes of this Part if an instrument is issued by any person for the |
| 10 |
| |
(a) | security for the debt, or |
| |
(b) | the rights of a creditor in respect of the debt. |
| |
(4) | A debt does not arise from a transaction for the lending of money for the |
| |
purposes of this Part so far as it arises from rights conferred by shares in a |
| 15 |
| |
(5) | But see the following provisions (as a result of which some such rights are |
| |
| |
(a) | Chapter 3 of Part 6 (OEICs, unit trusts and offshore funds), |
| |
(b) | Chapter 7 of that Part (shares with guaranteed returns etc). |
| 20 |
(6) | For the meaning of “share” see section 476(1). |
| |
304 | “Related transaction” |
| |
(1) | In this Part “related transaction”, in relation to a loan relationship, means any |
| |
disposal or acquisition (in whole or in part) of rights or liabilities under the |
| |
| 25 |
(2) | For this purpose the cases where there is taken to be such a disposal and |
| |
acquisition include those where rights or liabilities under the loan relationship |
| |
are transferred or extinguished by any sale, gift, exchange, surrender, |
| |
| |
305 | Payments, interest, rights and liabilities under a loan relationship |
| 30 |
(1) | For the purposes of this Part references to payments or interest under a loan |
| |
relationship are references to payments or interest paid or payable in |
| |
pursuance of any of the rights or liabilities under that relationship. |
| |
(2) | For the purposes of this Part references to rights or liabilities under a loan |
| |
relationship are references to any of the rights or liabilities under the |
| 35 |
arrangements as a result of which that relationship subsists. |
| |
(3) | For the purposes of this Part rights or liabilities under a loan relationship are |
| |
taken to include the rights or liabilities attached to any security that is issued |
| |
in relation to the money debt in question (and so is a security representing that |
| |
| 40 |
(4) | But for the treatment of funding bonds see— |
| |
(a) | section 413 (issue of funding bonds), and |
| |
(b) | section 414 (redemption of funding bonds). |
| |
| |
| |
|
| |
| |
| |
The credits and debits to be brought into account: general |
| |
| |
| |
(1) | This Chapter contains rules of general application about the credits and debits |
| 5 |
to be brought into account for the purposes of this Part. |
| |
| |
(a) | provides for the application of generally accepted accounting practice |
| |
in determining the amounts to be brought into account as credits and |
| |
debits and makes provision where accounts do not comply with that |
| 10 |
practice (see sections 307 to 312), |
| |
(b) | makes provision about bases of accounting (see sections 313 and 314), |
| |
(c) | provides for adjustments on changes of accounting policy (see sections |
| |
| |
(d) | sets out some general rules that differ from generally accepted |
| 15 |
accounting practice (see sections 320 to 327), |
| |
(e) | provides for exchange gains and losses to be included in the profits and |
| |
losses of a company from loan relationships (see section 328), |
| |
(f) | makes provision about debits for pre-loan relationship, abortive or pre- |
| |
trading expenses (see sections 329 and 330), |
| 20 |
(g) | makes provision for companies ceasing to be a party to loan |
| |
relationships (see sections 331 and 332), and |
| |
(h) | provides for deemed assignments where a company’s residence or |
| |
operations move abroad (see sections 333 and 334). |
| |
(3) | For further rules about the credits and debits to be brought into account in |
| 25 |
particular situations and cases, see— |
| |
(a) | Chapter 4 (continuity of treatment on transfers within groups or on |
| |
| |
(b) | Chapter 5 (connected companies relationships: introduction and |
| |
| 30 |
(c) | Chapter 6 (connected companies relationships: impairment losses and |
| |
| |
(d) | Chapter 7 (group relief claims involving impaired or released |
| |
| |
(e) | Chapter 8 (connected parties relationships: late interest), |
| 35 |
(f) | Chapter 9 (partnerships involving companies), |
| |
(g) | Chapter 10 (insurance companies), |
| |
(h) | Chapter 11 (other special kinds of company), |
| |
(i) | Chapter 12 (special rules for particular kinds of securities), |
| |
(j) | Chapter 13 (European cross-border transfers of business), |
| 40 |
(k) | Chapter 14 (European cross-border mergers), and |
| |
(l) | Chapter 15 (tax avoidance). |
| |
| |
| |
|
