CFM35860 - Loan relationships: connected parties: late interest: the four cases

Overview of connection

There are four cases where the debtor company and the creditor are connected in which the late interest rules potentially apply. However, following changes in FA15, two of these categories have now been removed.

(1) Connected through control: S374 (now removed)

CTA09/S374 applies the late interest rule where the debtor company and creditor company are connected within the meaning of CTA09/S466. This is where the:

  • borrower ‘controls’ the lender,
  • the lender controls the borrower, or
  • both the lender and the borrower are under common control.

See CFM35110 for the meaning of connection and ‘control’.

For example, companies in the same group are connected under CTA09/S466.

This category of connection was removed by FA15. Please see CFM35985 for transitional provisions and more information.

(2) Connection through participation in a close company: S375

CTA09/S375 applies where the borrower is a close company. The lender may be connected through participation in a number of ways - see CFM35870 for details.

For example, associated companies, or companies and individuals that are participators, may be connected in this way.

(3) Connection through a major interest: S377 (now removed)

A company on its own may not have ‘control’ of a company, but it may have a ‘major interest’, and thus be able to control a company together with one other person. CTA09/S377 applies here - see CFM35930.

This category of connection was removed by FA15. Please see CFM35985 for transitional provisions and more information.

(4) Connection through a pension scheme: S378

CTA09/S378 may apply where a pension scheme lends money to a company - see CFM35950.

Indirect connection

CTA09/S379 applies these four cases where loans are routed through an unconnected person. Creditors and debtors include persons standing indirectly, as well as directly, in those positions.

FA09 changes

Note, however, that for accounting periods beginning on or after 1 April 2009, the late interest rule will only bite in respect of a loan from a company where the creditor company is located in a tax haven. See CFM35960.

FA15 changes

FA15/S25 limited the cases of connection to which the late interest rules apply. In particular, it removed the cases where there is connection through control or connection through a major interest. Please see CFM35985 for information.