Part 2 U.K. Trading income

Chapter 5 U.K. Trade profits: rules allowing deductions

Incidental costs of obtaining finance U.K.

58 Incidental costs of obtaining finance U.K.

(1) In calculating the profits of a trade, a deduction is allowed for incidental costs of obtaining finance by means of—

(a) a loan, or

(b) the issue of loan stock,

if the interest on the loan or stock is deductible in calculating the profits of the trade.

(2) “Incidental costs of obtaining finance” means expenses—

(a) which are incurred on fees, commissions, advertising, printing and other incidental matters, and

(b) which are incurred wholly and exclusively for the purpose of obtaining the finance, providing security for it or repaying it.

(3) Expenses incurred wholly and exclusively for the purpose of—

(a) obtaining finance, or

(b) providing security for it,

are incidental costs of obtaining the finance even if it is not in fact obtained.

(4) But the following are not incidental costs of obtaining finance—

(a) sums paid because of losses resulting from movements in the rate of exchange between different currencies,

(b) sums paid for the purpose of protecting against such losses,

(c) the cost of repaying a loan or loan stock so far as attributable to its being repayable at a premium or having been obtained or issued at a discount, and

(d) stamp duty.

(5) This section needs to be read with [F1 —

(a) section 57B(3) (which imposes a limit on the total amount that may be deducted by virtue of this section or section 57B), and

(b)] section 59 (which provides for restrictions in relation to convertible loans and loan stock etc.).

Textual Amendments

F1 Words in s. 58(5)(a) inserted (with effect in accordance with Sch. 4 paras. 56, 57 of the amending Act) by Finance Act 2013 (c. 29), Sch. 4 para. 15

Modifications etc. (not altering text)

C1 S. 58 modified (with effect as mentioned in s. 56 of the amending Act) by Finance Act 2005 (c. 7), s. 51(3)(5)

C2 S. 58 modified (1.4.2010) by Income Tax Act 2007 (c. 3), s. 564N(3) (as inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 2 para. 15(3) (with Sch. 9 paras. 1-9, 22))

59 Convertible loans and loan stock etc. U.K.

(1) No deduction is allowed under section 58 in respect of a loan or loan stock if—

(a) it carries the right of conversion into, or to the acquisition of, shares or other securities, and

(b) the right is exercisable before the end of the period of 3 years from the date when the loan was obtained or the stock issued (“the 3 year period”).

(2) “Other securities” does not include a loan or loan stock—

(a) the interest on which is deductible in calculating the profits of the person's trade, and

(b) which does not carry such a right as is mentioned in subsection (1).

(3) But the restriction imposed by subsection (1) does not apply if the right is not, or is not wholly, exercised before the end of the 3 year period.

(4) In such a case any incidental costs of obtaining finance incurred before the end of the 3 year period are treated as incurred immediately after the end of it.

(5) If the right is exercised within the 3 year period as to part of the loan or loan stock, only the following incidental costs of obtaining finance are treated as incurred.

(6) The costs are those corresponding to the proportion of the loan or loan stock in respect of which the right is not exercised within that period.