Corporate tax on investing in company debt

[golder]

Company A pays 26% corporate tax and buys £10,000 of loan notes (debt financing) from company H and expects to receive 5% interest every year from holding these loan notes. However, taking into account tax, grossing up income, corporate tax and tax credits (allowable tax) - that actual percentage of return becomes slightly different to the 5%. How would I work out the actual net return %, considering the whole tax payment thing, for this £10,000 investment? Can someone help me calculate this please?

Thanks. Edward.

[Incredulum]

Don't understand you.

Company H issues £10k of loan notes to Company A. i.e. Company A lends 10k to Company H?

£500 of interest is accrued annually, on which corporation tax of 26% is paid i.e. £130.

A's post-tax return is therefore £370 on £10k, i.e. 3.7%.

What have tax credits and grossing up got to do with this? Or is one of the companies not UK resident?