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ACCA Strategic Professional · Advanced Taxation (UK) · Corporation tax: taxable total profits

Which statement about the treatment of a UK company's loan relationship (interest) income and expenses in computing taxable total profits is correct?

Interest on borrowing for trade purposes is deducted within trading profits, while a net non-trading loan relationship credit is taxed as part of total profits. Companies do not get income tax savings nil rate bands, and close company status does not exempt interest.

  1. AInterest income from a non-trading loan is taxed as savings income at 20% with a nil rate band
  2. BInterest paid on a loan used for the trade is deducted in computing trading profits, while a net non-trading loan relationship credit is included in total profitsCorrect
  3. CAll interest paid by a company is a charge on income deducted from total profits
  4. DInterest received is exempt if the company is a close company

Explanation

Interest on trade borrowing is a trading deduction under the loan relationship rules. A net non-trading credit is included in total profits as non-trading loan relationship income. Companies do not use the savings nil rate band, and the close company status does not exempt interest.

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