Interests payable deducted in Corporation Tax?

by **bm10** on Wed Mar 17, 2010 3:59 pm

For the past five years, the interest on a loan for a limited property company has been deducted as expenses for Corporation Tax purposes. However the interest has stayed in the company to help with the cashflows.

One accountant has told me that the interest can only be deducted for CT if it is paid within 12 months. Is he right?

HMRC has not questioned any of the returns, accounts or the Director's report in which it was specifically mentioned that the interests are being left for cashflow.

PLEASE HELP !!!

by **Incredulum** on Wed Mar 17, 2010 5:39 pm

Who has lent the money to the company?

by **bm10** on Thu Mar 18, 2010 5:50 pm

Hi,

Thank you Incredulum for your interest.

I lent the money as one of the Directors and no CT61 has been sent to HMRC as money has not been paid out. I do not have any salary either as yet. I was a basic rate tax payer until 2007 and I have never filed a self-assessment form as my tax was by PAYE. I do not have other income apart from bank interests.

Thanks.

by **Incredulum** on Thu Mar 18, 2010 6:28 pm

So you're not being taxed on the income, but the company is getting relief for the interest. Unsurprisingly HMRC don't like that.

And so no deduction is available if the interest is not paid where the loan is between a close company and a participator. It is likely (and you probably know the answer anyway) that you fall into this class.

by **bm10** on Thu Mar 18, 2010 7:56 pm

I have not actually received any income and HMRC has not queried the deductions made over the last 5 years.

What are the possible solutions now (apart from advising HMRC) regarding past returns?
Also, as the company's cashflow is still not brilliant, can I keep the loan and gift past and future interest?

Thanks.

by **Incredulum** on Fri Mar 19, 2010 11:29 am

bm10 wrote:I have not actually received any income and HMRC has not queried the deductions made over the last 5 years.

That's exactly my point. The company has had a tax deduction, but you have not received the income, so have not been taxed on it. There is a mismatch; not surprisingly they do not like this.

I presume you are you a participator in a close company; please confirm.

What are the possible solutions now (apart from advising HMRC) regarding past returns?

Errr, advising them. And running the risk, if you do not, that you suffer penalties and interest. You need to talk to your accountant regarding full disclosure.