I understand both of your points re. interest and I also understand that the loan must be at commercial rates...
However, my question was with regard to corporation tax on the PRINCIPLE of the loan. E.g.;
I receive Â£1000 (+VAT) from my regular line of business. I set aside the VAT, and I take the ex-VAT amount, Â£1000, and I loan it (ALL) to Company B (new line of business for me, loaning cash)
Now, at the end of my financial year (assuming I do no other business, and assuming that I receive no interest payments nor repayments on the loan, to keep things simple), what is my taxable profit? Is it Â£1000, or is it zero (i.e. the Â£1000 that I lent out is an EXPENSE incurred as part of my new line of business, and offsetable against my turnover)?
I've been told that IT IS an allowable expense, i.e. that the loan principle that I lend out is offsetable against my turnover, in arriving at a taxable profit figure for my company. I've also been told that from Company B's point of view, the Â£1000 that it receives (borrows) does NOT count towards its taxable profit (it's borrowed money after all.)
Both of those statements kind of make intuitive sense to me, ***BUT*** at the same time, I can't understand how that is actually allowed: because that taxable Â£1000 profit has just "disappeared"! Surely, at some point corp. tax must be paid on that Â£1000 that I loaned?