Loan relationships—connected companies relationships (amortised cost basis of accounting)
Loan relationships—connected companies relationships (amortised cost basis of accounting)

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Loan relationships—connected companies relationships (amortised cost basis of accounting)
  • Amortised cost basis of accounting
  • Specific exceptions from the obligation to adopt amortised cost accounting
  • Related transactions on connected companies creditor relationships
  • Changes in accounting basis involving a change in value—companies becoming and ceasing to be connected
  • Accounting periods beginning on or after 1 January 2016
  • Accounting periods beginning before 1 January 2016
  • Accounting periods beginning before 1 January 2016—companies becoming connected
  • Asset
  • Liability
  • more

The general rule is that the taxation of the credits and debits arising to a company from its loan relationships in an accounting period are those shown in its GAAP compliant accounts, determining the company's profit or loss, for that period. This general rule is often referred to as the tax following the accounts.

For a detailed discussion of the general computation rules that underpin the loan relationships regime, see Practice Note: Taxation of loan relationships.

The general rule does not apply in all circumstances.

In certain important circumstances special rules require the tax treatment of a company's loan relationships to depart from their treatment in the company's accounts (even where those accounts are GAAP-compliant). Where such rules apply, the company will need to adjust its accounts for tax purposes in order to correctly calculate its liability to corporation tax in respect of its loan relationships.

One important area where taxation departs from the accounts is where the relevant loan relationship of a company is a connected companies relationship.

The most fundamental consequence of the connected companies relationships applying is that the connected companies will (in addition to other obligations) be required to adopt the amortised cost basis of accounting in relation to the connected companies relationship for tax purposes. Depending on how the relevant financial instrument is categorised and measured for accounting purposes,