ExpertMedium2 marksMultiple Choice
ACCA · Question 14 · Corporation tax liabilities
Section A: Objective Test
During the year ended 31 March 2024, a manufacturing company received £5,000 in bank interest and paid £2,000 in interest on a loan used to purchase a let investment property. How are these amounts treated in the Corporation Tax computation?
Section A: Objective Test
During the year ended 31 March 2024, a manufacturing company received £5,000 in bank interest and paid £2,000 in interest on a loan used to purchase a let investment property. How are these amounts treated in the Corporation Tax computation?
Answer options:
A.
Bank interest is trading income; loan interest is a property expense.
B.
Aggregated as a net non-trading loan relationship credit of £3,000.
C.
Bank interest is a non-trading loan relationship; loan interest is deducted from property income.
D.
Aggregated as a net trading loan relationship credit of £3,000.
How to approach this question
Identify the nature of the interest. Bank interest received is a non-trading credit. Interest paid on a loan for an investment property is a non-trading debit. For companies, these are aggregated into a single non-trading loan relationship pool.
Full Answer
B.Aggregated as a net non-trading loan relationship credit of £3,000.✓ Correct
For Corporation Tax, interest received (such as bank interest) and interest paid for non-trading purposes (such as a loan to buy an investment property) are dealt with under the loan relationship rules. They are aggregated to find a net non-trading loan relationship (NTLR) credit or deficit. Here, £5,000 credit - £2,000 debit = £3,000 net NTLR credit, which is added to total taxable profits.
Common mistakes
Deducting the loan interest from the property income directly, which is the rule for individuals, not companies.
Practice the full ACCA TX — Taxation Practice Exam 5
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