SolvedCFM33060 | Loan relationships: Core rules: expenses
From HM Revenue & Customs · Corporate Finance Manual
Only certain qualifying expenses are within the scope of the loan relationship rules, and therefore potentially eligible for relief under the regime.
Expenses must be incurred by a company under or for the purposes of its loan relationships and related transactions.
In addition, the expenses must be incurred directly in the following ways:
Bringing a loan relationship into existence arrangement fees with banks fees or commission for a loan guarantee
| Legislation | Expense | Examples |
| 306A(2)(a) | Bringing a loan relationship into existence | arrangement fees with banks fees or commission for a loan guarantee |
| 306A(2)(b) | Entering into, or giving effect to, a related transaction | broker’s fees on purchase or sale of existing loan legal fees on the transfer of a loan |
| 306A(2)(c) | Making a payment under a loan relationship or related transaction | cost of making interest payments early redemption penalties |
| 306A(2)(d) | Taking steps to ensure receipt of payments due under a loan relationship or related transaction | solicitor’s fees incurred in pursuing a debt defaulter |
Not directly incurred
Examples of expenditure not incurred directly for the purposes of a loan relationship would include, for example:
premiums for key person insurance or other insurance policies
general investment advice
Pre-loan relationship and abortive expenses
Expenses that arose in respect of a loan relationship can be taken into account, even if they are incurred before the company became a party (CTA09/S329). The same applies to abortive expenditure where the company fails to become a party.
To be taken into account the expenses must otherwise meet the requirements to be within the scope of the loan relationship rules.
Further guidance
Related transaction
A 'related transaction' is essentially the disposal or acquisition of the loan relationship or a variation in its terms - see CFM31120.
Pre-trading expenses
CTA09/S330 allows for an election, to be made within two years of the accounting period in which they are incurred, for the debits to be treated as a debit for the period in which trade commences, subject to the trade commencing within seven years of the end of the accounting period. See CFM32100 for more details.