Non-Trading Income for Companies

How Non-Trading Income Is Taxed Differently

Non-trading income is any receipt that does not arise from the company’s trade or business activities. It is still liable to Corporation Tax, but it is computed and reported separately from trading profits.^[1]

The main categories of non-trading income for companies are:

• Property income (rental)
• Non-trading loan relationship credits (interest received)
• Dividends received (usually exempt)
• Miscellaneous income
• Non-trading chargeable gains

Property Income

When a company lets out property, the rental income is taxed as property income for Corporation Tax purposes (not as trading income, unless the company is a property trading company).^[2]

Key rules for company property income:

• Rental profits are calculated on an accruals basis (income earned in the period, not when cash is received)
• Allowable deductions include repairs, insurance, letting agent fees, and loan interest (via loan relationships)
• The “restriction on finance costs” that affects individual landlords does not apply to companies — interest is fully deductible
• Capital allowances can be claimed on qualifying fixtures within the property
• Property losses can be carried forward and set against future property income, or in some cases against total profits

Interest & Loan Relationship Credits

All interest received by a company is taxed under the loan relationships regime. If the borrowing or lending is not part of the company’s trade, the interest is classified as a non-trading loan relationship credit.^[3]

Common examples of non-trading interest include:

• Interest earned on bank deposits and savings accounts
• Interest on loans made to other companies (where lending is not the company’s trade)
• Returns on corporate bonds held as investments

Non-trading loan relationship credits and debits are netted off. If there is a net credit, it is added to total profits. If there is a net debit (non-trading deficit), it can be set against other profits of the same period, carried back one year, or carried forward.

Dividends Received

Dividends received by a UK company from another company (UK or overseas) are generally exempt from Corporation Tax.^[1] This avoids double taxation, since the paying company has already been taxed on its profits.

The exemption applies to most dividends, but there are narrow anti-avoidance exceptions for:

• Dividends that are, in substance, interest payments
• Dividends from arrangements designed to obtain a tax advantage
• Certain dividends from overseas companies in low-tax jurisdictions (the “small company” exemption conditions must be met)

Miscellaneous Income

Income that does not fall into any other category is taxed as miscellaneous income. This catch-all heading may include:

• Royalties or licence fees received (where not part of the trade)
• Commission income from one-off arrangements
• Income from rights or permissions granted
• Compensation or damages received (where not capital in nature)

Miscellaneous income is reported separately on the CT600 and is included in the company’s total taxable profits. All of these income types are brought together when you complete the CT600 online.

Further Reading

• Trading Income for Companies — the rules for income that is from your trade
• Loan Relationships — detailed rules for interest received and paid
• Dividends & Corporation Tax — how dividends paid and received affect CT
• Chargeable Gains for Companies — gains on disposal of non-trading assets
• Taxable Profits Explained — how non-trading income fits into total taxable profits