SolvedCFM32030 | Loan relationships: non-trading profits and deficits
From HM Revenue & Customs · Corporate Finance Manual
What is a non-trading loan relationship?
A company will have a non-trading loan relationship if it is not a party to that loan relationship for the purposes of its trade. For example, if
it has no trade, such as an investment company, or
it has a trade, but it holds a loan relationship for investment or other non-trade purposes.
Note that a property or overseas property business is not treated as a trade for this purpose, nor is a mine or railway etc under CTA09/S39.
Non-trading credits and debits
Any credits and debits in respect to loan relationships that are not brought into account as trading income and expenses are termed ‘non-trading’ (S301(2)). The company arrives at the amount to be brought into account in respect to non-trading loan relationships, by aggregating the non-trading credits and debits from loan relationships (including deemed loan relationships under CTA09/PT6).
Where the result of the calculation is a surplus of non-trading credits, or where there are only non-trading credits, the amount is chargeable as income under CTA09/S299.
Where the result is a surplus of non-trading debits, or where the company has only non-trading debits the amount is treated as a non-trading deficit. This is dealt with in accordance with CTA09/PT5/CH16 (for pre 1 April 2017 deficits) or CTA09/PT5/CH16A (for post 1 April 2017 deficits).
Relieving non-trading deficits
A net non-trading loss from loan relationships is relieved as non-trading loan relationship deficit.
Such deficits can be:
The methods by which a non-trading deficit can be relieved depend on the accounting period in which the deficit arises:
CTA09/PT5/CH16 applies for pre-2017 deficits which are deficits arising in an accounting period that begins before 1 April 2017
CTA09/PT5/CH16A applies for post-2017 deficits which are deficits arising in an accounting period that begins after 1 April 2017
In particular, deficits that arose before 1 April 2017 can only be carried forward against non-trading income whereas deficits arising after 1 April 2017 can typically be carried forward against any kind of profit.