UK government seeks changes to rules on interest between related parties
August 07, 2008
The UK tax authorities have proposed amendments to corporation tax rules on late payments of interest between connected companies
The Finance Act 1996 does not allow a company to claim tax relief on interest that is paid late to a creditor that is a connected party. Late means ‘12 months of the end of the accounting period in which it accrues, and is not brought into account by the creditor under the loan relationships rules’. The company owing the interest can get a deduction when it is paid and not at the time it is accounted for. The issue arises where the interest is owed to an overseas company in the same group. Recent European Court of Justice decisions suggest that allowing a deduction only when it is paid is discriminatory.
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