Section A

Omega Ltd, a trading company, made a loan to another company to earn interest. During the year, Omega Ltd received £5,000 in interest and paid £1,000 in administrative fees related to managing this loan. How should this net amount of £4,000 be treated in Omega Ltd's corporation tax computation?

Answer options:

As trading income.

As non-trading loan relationship income.

As a chargeable gain.

It is exempt from corporation tax.

How to approach this question

Determine if the loan is for trading purposes. If not, interest received and related expenses fall under the non-trading loan relationship rules.

Full Answer

B.As non-trading loan relationship income.✓ Correct

For a standard trading company, loans made to earn interest (rather than for trade purposes, like trade receivables) fall under the non-trading loan relationship (NTLR) rules. The interest received is an NTLR credit, and the administrative fees are NTLR debits. The net amount is taxed as NTLR income.

Common mistakes

Classifying all income of a trading company as trading income.

Question 07 All questions Question 09

Practice the full ACCA TX — Taxation Practice Exam 4

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