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Hi ,I was wondering if anyone could help Im struggling with the concept of Loan relationships and how they should be treated within the corporation tax computation because some books show it as being added on and other ignored.
Im confused when the situation arises with the Accruals “£500 was accrued at the end of march for example?”
Any help would be greatly appreciated
Hi,
there are two situations here:
1) if the loan is for trading purpose- loan interest will be qualified expenses which don’t need to be added back to the trading profit ( which you will be given in the exam ( profit before tax and interest)2) if the loan is for non – trading purpose, the loan interest will not be qualified exp. for calulating trading income purpose. This amount will be added back to trading profit- as part of trading income. you will be paying tax on it.
But the interest you paid on loan will be dealt with somewhere else- which is interest income catalogy in corp tax computation.So you can net of your interest income and interest exp. pay tax on that net amount. Basically, you are not paying tax on the loan exp. but just deducted in different catalogies.
Hope this answers your question.
Hi Sue ,
Thank you for your reply , I was just wondering if for example they wrote off a loan interest to a customer and they received interest you would net those two off together wont you
Hi,
if the company is not in lending money business. then the loan ( not for trading purpose)to a customer/supplier/employee written off will be net off against interest income the company received as interest income in corp tax computation.
make sense?
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