Trading Loans Flashcards
Define
Loan Relationship
a money debt arising from the lending of money
Define
Loan Debtor
Expenditure for the business
Define
Loan Creditor
Income into the business
TL or NTLR?
“if you don’t pay the invoice in 30 days, interest will accrue”.
That interest is a trading loan relationship
A company will have a trading loan relationship as a borrower, a debtor, if it enters into a loan relationship because of its trade.
Posh Mugs Ltd sells 100,000 mugs to Fancy Stuff Ltd for £300,000. The terms are that payment for the mugs is due within 30 days and that interest will arise on late payment. Fancy Stuff Ltd pays £310,000 after 90 days, to include the late payment interest of £10,000.
The £10,000 is a trading loan relationship credit of Posh Mugs Ltd, and a trading loan relationship debit of Fancy Stuff Ltd.
TL or NTLR?
Easy Forsome Two Ltd takes out a loan from a bank. It invests the amount it has borrowed in an investment property which it rents out.
The interest which the company pays on the loan is a non-trading loan relationship debit. That is because the loan is not for a trading purpose. The property is an investment and any rental income received is assessed as property income.
A non-trading loan relationship exists when the transaction does not have a trade purpose.
TL or NTLR?
Easy Forsome Ltd deposits surplus money in an interest-bearing bank account.
The interest received is a non-trade loan relationship credit. That is because the company is not a moneylender and its deposit does not have a trade purpose
A non-trading loan relationship exists when the transaction does not have a trade purpose.
How are trading loan relationships dealt with in CT?
Simply with as part of the trading income computation.
True or False
An NTLR net debit carried back can be set off only against NTLR net credits of the previous period.
True
List three debits or credits, apart from interest, which can arise from a loan relationship.
Reliefs for NTLR’s
The company could choose to
* claim to set the deficit against total profits of the AP in which the deficit arose
* carry forward the deficit for set off against total profits of future APs
* carry back the deficit against non-trading loan relationship profits of APs falling into the preceding 12 months
* surrender the deficit as group relief under Part 5 CTA10
* carry forward the deficit and surrender as group relief in a later period under Part 5A CTA10
or a combination of these, up to the amount of the deficit
What it can’t do is take the losses backwards against anything but NTLR
True or False
Regardless of whether the underlying transaction is revenue or capital, all profits and losses from loan relationships are taxed, or relieved, as income.
True
TLR or NTLR? Other?
Ownership of ordinary shares
NEITHER - Ownership of ordinary shares does not create a loan relationship. A shareholder simply owns a share or shares of the company and is not, in that capacity, a lender.
