Hi,
I was after some assistance with a corporation tax scenario if possible.
I have a company which exists to make money by lending money to it's customers based on a factoring type model.
Therefore it's profit is generated by way of charging interest to it's customers. I understand this profit is chargeable to corporation tax.
My issue is this:
Company A borrows £10,000 from Company B in order to make a loan of £15,000 Company C.
Company C pays £16,000 back to Company A 30 days later. Company A therefore makes £1000 gross profit
Company A then repays £10,500 back to Company B therefore making a net profit of £500.
Question: Is the £500 interest charge from B to A deductible for corporation tax? Does company A pay corporation tax on £500 or is the loan interest incurred disallowable meaning corporation tax is charged on the whole £1000???
Thanks in advance.
Darren
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On those figures the profit is £500, and that is also the taxable profit.
Why would you think that the interest paid would be added back?
Thanks, that's what I thought but someone told me something to make me doubt myself.
I wanted to make sure there were no special rules for finance businesses who trade purely on the model of borrowing money to sell it effectively.
So essentially any cost incurred in being able to loan money out is an allowable expense so long as it is relevant to the trade?
Thanks