What is a loan relationship?

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • What is a loan relationship?
  • When does a company have a loan relationship?
  • What is a money debt?
  • What is a transaction for the lending of money?
  • Relationships treated as loan relationships
  • Guarantees

Almost all companies will have some loan relationships However some items that are commonly assumed to be loan relationships are not eg outstanding consideration for the sale purchase of property and inter company balances relating to unpaid amounts for goods or services in each case where there is no supporting written instrument Conversely there are also items that do not meet the strict definition of loan relationship but which are deemed to be a loan relationship for tax purposes This note provides guidance on the definition of a loan relationship For a discussion of the taxation of loan relationships see the Taxation of loan relationships guidance note and for a more detailed consideration of the loan relationships regime in its entirety see Simon s Taxes D1 7 HMRC s Corporate Finance Manual contains detailed guidance on its interpretation of these rules at CFM30000 onwards When does a company have a loan relationship A company has a loan relationship if there is a money debt in respect of which the company stands in the position of a creditor or debtor the debt arises from a transaction for the lending of money CTA 2009 s 302 For a loan relationship to exist this core definition must be met It does not matter whether the debt is secured or unsecured and whether the other party is a company or not It is important to note that if a company is owed money it stands in the position of creditor and has a creditor relationship Conversely if the company owes money it stands in the position of debtor and has a debtor relationship Essentially the lender investor holder of debt has an asset on its balance sheet creditor relationship and the borrower issuer of debt has a liability on the balance sheet debtor relationship This is opposite to conventional accounting terminology What is a money debt A money debt is defined as a debt in whatever currency which can

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