CH 8 - Loan Relationships

Question 1

What is the difference between
Trading loan
&
Non-trading loan?

Answer 1

Trading loan;
- allowable deduction/(income) from/(included in) trade profits

Non-trading loan;
- Expenses added back (income deducted from) trade profits but are allowed as non-trading expense (profit) LR

Question 2

What represents non-trading loan relationship?

Answer 2

• loan to buy an investment property
• loans to employees or customers
• interest received on positive bank deposits
• interest on overpaid or underpaid corporation tax

non-trading income and expenses are pooled

Question 3

When interest is not deductible on an accrual basis but only ductible when paid?

Answer 3

Interest is not deductible on an accruals basis, but is instead only deductible when it is
paid if :
* it is payable to a participator (or their associate) in a close company ; and
* it has not been paid within 12 months of the end of the accounting period; and
* it has not been taxed in the hands of the recipient under the loan relationship rules.

(CTA 2009, s.375) (CTA 2009, s.373)