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Tax on Inter Company Loans

Are Discounting entries required by FRS 102 taxable for small companies?

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Client is in receipt of interest -free loans, which are not repayable on demand, from another company controlled by the director.

According to FRS 102 the loan has to be discounted and entries made to reserves or through P&L.

As the 2 companies are 100% owned by the director should the loan be treated as a director's loan and the discount treated as a capital contribution?

Or are they to be treated as a group and entries put through the P & L?

If the entries go through the P & L are they liable to tax or are they exempt as the Transfer Pricing rules don't apply to small companies?

 

Replies (4)

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By johngroganjga
27th Apr 2018 10:18

What is it that makes them not repayable on demand? Is it not an option just to tear it up - job done?

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Replying to johngroganjga:
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By ajkidd
27th Apr 2018 10:45

New bank loan means no repayment possible until bank repaid in 15 years.

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By johngroganjga
27th Apr 2018 14:00

That's not necessarily quite the same thing. That may just be the creditor company undertaking not to seek repayment unless and until etc. Is there a deed of postponement, or something similar?

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Replying to johngroganjga:
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By thevaliant
27th Apr 2018 15:16

John's right. Unless there is a formal agreement between the two companies, they ARE repayable within a year. So no discounting.

BUT if a proper, formal agreement exists between the two companies (not between the bank and one of the companies) then yes, discounting applies. 5% PA or summit. Crack on.

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