Corporation Tax Act 2009 section 486B

Disguised interest to be regarded as profit from loan relationship

Section 486B ensures that where a company receives a return from an arrangement that is economically equivalent to interest, that return is taxed as a loan relationship profit, even if the arrangement is not structured as a conventional loan.

• A return that behaves like interest — reflecting the time value of money at a commercial rate, with no practical likelihood of ceasing — is taxed as a loan relationship profit under Part 5 of the Act.
• Credits and debits on the return must be calculated on an amortised cost basis, even if the return is capitalised on the balance sheet or not recognised in the profit and loss account at all.
• Where two or more parties jointly receive a return that would qualify as disguised interest when viewed in aggregate, the taxable amount is apportioned between any companies involved on a just and reasonable basis.
• The only corporation tax treatment permitted for such a return is under this section — ruling out, for example, treatment as a chargeable gain — and the definition of "arrangement" is deliberately wide but excludes finance leases.