Trade Loan Write Off

Dawny

Is a trade loan to a non related party an allowable deduction for corporation tax purposes?

Also, how should this be reflected in the Statutory Accounts of a small company?

Thank you!

MarieNoelle

Hi Dawny, could you give a bit more information?
A loan can not be "deducted" but interests payable are allowable deductions.

Dawny

Company A provided company B with a loan of £50,000 so that they could continue to trade. However, there is now no hope of receiving repayment of this loan and so the director of company A wants to write this off.

There were no interest payments, it was a simple case of crediting the bank account with £50,000 and debiting a debtor.

KernowAccountant

Dawny said:

Is a trade loan to a non related party an allowable deduction for corporation tax purposes?

Also, how should this be reflected in the Statutory Accounts of a small company?

Thank you!

A trade loan? Is "company A" a bank?

Dawny

No, just a small company (engineering consultancy services) with a bit of cash who was trying to help another company out. If Company B continued to trade, they may have been able to contract the services of A, but that never happened.

KernowAccountant

"Company A" is party to a loan relationship as defined by s.302 CTA 2009.

It is assumed that the companies are not connected as defined at s.466.

Despite your description of a "trade loan", it is not a trade loan as defined by s.298, but instead a non-trade loan relationship.

Where a valid debit arises, relief is given under s.457, subject to claims under s.403, s.459/461 and/or s.459/462. Be aware of the restrictions on debits in s.324.

Hopefully I haven't missed something obvious. I dare say I'll soon be corrected if I have. ;-)

Dawny

Perfect, thank you for your help.