What is meant by a loan relationship ― practical approach
Corporation Tax
Guidance
Brief overview of the rules
The loan relationships legislation applies to any ‘money debt’ arising from the lending of money entered into by a company, either as a lender or borrower. The rules are contained in CTA 2009, ss 292–569 (Parts 5 and 6).
Broadly, the tax treatment of loan relationship-related debits and credits is based on the amounts reflected in profit and loss in the company’s accounts (under GAAP), with debits generally being allowable and credits being taxable. However, there are a number of exceptions to this general rule. One of the most important exceptions is where the relevant loan relationship is between 'connected companies'. For connected companies, any loan relationship debits are generally not allowable and any loan relationship credits are treated as not taxable. Connected companies are also prevented from using fair value accounting and must use amortised cost basis accounting for their loan relationships.
Typically, the tax analysis would first involve assessing whether the debt actually constitutes a loan relationship. In some situations, this will be obvious
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Produced by Tolley in association with Rob Durrant-Walker of Crane Dale Tax, part of AMS Group
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