Regulation on loan interest rates between two connected companies

[Seasoningoflife]

Hello!
Is there any regulation published by HMRC or another body according loan interest rates between two connected companies?

If in agreement is information that interest on the loan amount will be charged until the date of repayment, should interest be accrued monthly in company accounts?

Is there some like minimum loan interest rate?

Thank you!

 

[Baines Watson]

Hello!
Is there any regulation published by HMRC or another body according loan interest rates between two connected companies?

If in agreement is information that interest on the loan amount will be charged until the date of repayment, should interest be accrued monthly in company accounts?

Is there some like minimum loan interest rate?

Thank you!

Hello!

Yes, HMRC has regulations concerning loan interest rates between connected companies. These transactions must be conducted at arm's length, meaning the interest rate should reflect what would be charged between independent parties in similar circumstances. This is to ensure that the transaction is not used to shift profits and reduce tax liabilities.

If the loan agreement specifies that interest will be charged until the date of repayment, interest should indeed be accrued regularly in the company accounts—typically on a monthly basis—to accurately reflect the financial obligations.

While there isn’t a prescribed minimum loan interest rate, the rate charged should align with what is commercially justifiable and in line with market rates to avoid any issues with HMRC regarding transfer pricing rules.

Given the complexities involved in intercompany loans and the potential tax implications, it's highly advisable to seek professional help to ensure compliance with all relevant regulations and to structure the loan appropriately.

Please feel free to reach out if you need further assistance or professional advice on this matter.

Best regards,