OK we have a client who's Company owes them £40k (50% shareholder).
The Company pays interest on this loan. We do CT61. Company withholds and pays over 20%. All goes on tax return.
Client took out a £25k loan to buy a car a year ago and didn't tell us.
HMRC HS340 says tax relief if loan is for certain specific purposes. S392 ITA 2007 says "that is used".............
If he had taken the loan out and paid it in to the Company as a new loan and then repaid some of the original loan to buy the car the new loan interest would be tax deductible.
So should we claim the interest relief on the new loan or tell the client to refinance and move the money around so that there is a bank receipt for the money borrowed?
http://www.hmrc.gov.uk/manuals/saimmanual/saim10000.htm doesn't seem to shed any light
Should we err on the side of caution???!!!