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Overview of rules

Generally, debits and credits arising on loan relationships are taxed and relieved as they are recognised in the accounts, ie generally on an accruals basis. However, for:

1. •

   loans made by a close company participator, or

2. •

   loans made by an occupational pension scheme

where interest on such a loan relationship is not paid within 12 months of the end of the accounting period in which it accrues, no relief is given for corporation tax purposes until it has actually been paid (ie a debit for that interest will not be allowed until it has actually been paid). These provisions are known as the late interest rules.

CTA 2009, ss 372–379 (Pt 5, Ch 8); CFM35810

The late interest legislation is essentially a set of anti-avoidance measures. It seeks to prevent companies from taking advantage of an interest mismatch that would otherwise arise if the borrower obtained relief for accrued interest which is not paid for some time, and the lender is outside the loan relationship rules (or is completely outside