CT interest included in contract settlement

Posted by nogammonsinanun... PM | on Thu, 02/07/2009 - 15:11 349 3 comments | report

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

Comments

EDIT: Oops, ignore "Part 2"

nogammonsinanun... | Fri, 03/07/2009 - 08:01 | Permalink

I forgot for a moment there that the loan relationships rules came in about 3 years before CTSA.

Are you sure?

Peter Cane | Fri, 03/07/2009 - 10:39 | Permalink

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

nogammonsinanun... | Fri, 03/07/2009 - 12:05 | Permalink

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