Ltd. lent money to another Ltd. and in lieu of interest received rental usage

[CoblersClob]

Hi all,

My ltd. co. lent a sum to another ltd. co. (owned by an ex-colleague, unconnected to me) and in lieu of interest they provide a desk in an office they rent. This agreement was done "properly" - contract drawn up by solicitor, bank transferred, etc - all on the record.

I'm now wondering if I can impute some charge for this and charge it against my profits in the ltd. to reduce my liability as if i were paying rent? There are two ways I can see an amount to charge being arrived at:
1) The interest I'm losing.
2) The market rate for the service received.

The loan is unsecured and the ex-colleagues business is small which made the interest rate punitive for him. I required some space and thus the arrangement was beneficial to both parties.

Any information on the above situation greatly appreciated - are imputed charges like this generally allowable?

[Clare@InTouch]

How can you imply a cost to the rent without also recognising the interest you didn't receive as an offset?

If you didn't incur a cost then I don't see any way you could argue it as a tax deductible expense. Unless it's the interest you would have charged. So recognise the income and the expense but then you're no better off.

[blinko]

Coming on here with one post and asking questions like this doesn't exactly excite the more knowledgeable members......as according to your one post you do not appear to have contributed much to the community.


So is this a case of generating interest payments that were never expected to be received and then using them to offset against Corporation Tax.

The best answer is good luck and this is something that your accountant will be able to advise you on!

[CoblersClob]

How can you imply a cost to the rent without also recognising the interest you didn't receive as an offset?

Not sure if I understand but that is basically my question - can I recognise anything as a cost here? Expense for rent would be the foregoing of potential interest received - there is no offset. E.g. say interest @ market rates would be £2k for the year, I'd charge £2k to rent expense. I'm gonna take a leap of faith and say that any estimates such as this would not be allowable; so basically answered my own question. Reason for question: I was curious if others had been in a similar 'barter' type situations and how they'd dealt with it.

Coming on here with one post and asking questions like this doesn't exactly excite the more knowledgeable members......as according to your one post you do not appear to have contributed much to the community.

We all have to start somewhere! If I see anything in my area of knowledge I will do my best to help other members.

[ASB]

Not sure if I understand but that is basically my question - can I recognise anything as a cost here? Expense for rent would be the foregoing of potential interest received - there is no offset. E.g. say interest @ market rates would be £2k for the year, I'd charge £2k to rent expense. I'm gonna take a leap of faith and say that any estimates such as this would not be allowable; so basically answered my own question. Reason for question: I was curious if others had been in a similar 'barter' type situations and how they'd dealt with it.

The situation is that you receive no interest and you receive no rent.

Yes, you are saving 2k (or whatever) on rent. But you are also not receiving the interest.

If you were receiving the interest then this would bw taxable income (to the extent it wasn't offset by relevant expenses). Thus overall the entire position is neutral (either way).

There may be a pedantic argument that you should book the income forgone and the rent not paid, that's a question for how your accountants want to handle it. You are recevinig a consideration of value for the loan - it's just not cash.