Loan Relationship Rules

Interest payable on TRADING loans is deductible in deriving the trading profit. Interest payable on NON TRADING loans is not deductible in computing the trading profit but is instead deducted from the Interest Income assessment shown separately on the Corporation Tax Computation.
A trading loan would be for example, to buy a building or plant and machinery to use within the trade, or to increase working capital.
The 2 main examples of non trading loans are to buy shares in other companies or to buy an investment property for letting.

The adjustment of profits rules are mostly the same for Income and Corporation Tax. The main difference is that there are no private use adjustments in Corporation Tax whereas most adjustment of profits questions for the unincorporated trader will involve private use and consumption by the proprietor of the business. Read the OT course notes in conjunction with the online lectures. The same issue arises in the capital allowances computation where in Income Tax a separate computation is required for any asset which has private use by the proprietor.

The correct term for the “Interest Income” assessment in the corporation tax computation is the “Non Trading Loan Relationship (NTLR)” assessment which includes includes interest income receivable from loans made by the company but also deducts interest payable on non trading loans as stated in my first answer above. A loan relationship therefore is simply a loan made by the company or to the company.