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CT interest included in contract settlement
Posted by nogammonsinanun... on Thu, 02/07/2009 - 14:11
You enter into a contract settlement with HMRC on the conclusion of a CT enquiry, which settlement is calculated in the traditional manner: Principal CT underdeclared, interest thereon, and penalties, giving rise to a single lump sum payable in 90 days.
Part 1
Is the interest contained within the calculation allowable as a deduction under the loan relationships legislation?
Part 2 (of relevance only if the answer to part 1 is "yes")
If some of that interest relates to an understated liability of a pre-CTSA period, would CT relief be denied on that element of the interest charge? (expecting the answer yes)
With kind regards
Clint Westwood
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EDIT: Oops, ignore "Part 2"
I forgot for a moment there that the loan relationships rules came in about 3 years before CTSA.
Are you sure?
Hi Clint
I think interest is only allowable for CTSA periods for accounting periods ended 1 July 1999 onwards, so assuming the interest payable under your settlement is generally allowable, it would not be allowable for periods ended on or before that date.
See attached http://www.hmrc.gov.uk/manuals/ctmanual/CTM92190.htm
Peter Cane
Uff! thanks Peter
You are right.
The question that was of greater concern to me (part 1) is whether any of the interest is deductible at all. The contract settlement is a single composite lump sum, and the manner of its calculation may include any number of factors including a notional amount which may be calculated using prevailing interest rates, but I was not sure that it amounted to interest in its fundamental nature just because of the manner of calculating the settlement. I think that your interpretation is consistent with others that I have received.
With kind regards
Clint Westwood