Non trading deficit 2 / 5

Non trading loans

If interest payable on a non trading loan is more than the interest receivable on non trading loans then a non trading deficit will be created.

Any amount of the deficit can be used

  • against total profits of the current chargeable accounting period

  • against interest income of the previous 12 months

  • against future total profits

  • for group relief

Illustration

Cobble Ltd. has interest income of £10,000 and interest payable of £20,000 in the year ended 31 December 2024, they also have trading profits of £3,000 and gift aid donations of £1,500 in the year ended 31 December 2024 and the year ended 31 December 2025. 

How will this non trading deficit get tax relief?

Solution

  • Non trading deficit

    Interest receivable £10,000
    Interest payable (£20,000)
    Non trading deficit (£10,000)

  • Year ended 31/12/2024

    Trading profits £3,000
    Non trading deficit (£1,500)
    Qualifying charitable donations (£1,500)
    Taxable trading profits Nil

    Gift aid donation wasted for the year ended 31/12/2024

    Notice that the company can choose the amount to use in the current year and in this case restricts the loss relief to £1,500 in order to save the gift aid donation.

  • Year ended 31/12/2025

    Trading profits £3,000 
    Less:
    Non trading deficit (£1,500)
    Trading profits £1,500
    Less:
    Gift aid donation (£1,500)
    Taxable trading profits Nil 

    Again, only £1,500 was used to preserve the deduction of the gift aid donation.

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