Policy paper

Statement of Practice 3 (1978)

Published 19 October 1978

© Crown copyright 1978

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  1. Section 360 Income and Corporation Taxes Act (ICTA) 1988 provides, subject to certain conditions, for relief from Income Tax in respect of interest on a loan applied in acquiring any part of the ordinary share capital of a close company or in lending on for use in the business of that or an associated close company.

  2. In paragraph 41 of the HM Revenue and Customs (HMRC) booklet entitled ‘Tax treatment of interest paid’ issued in 1974, it is stated that “The company must have been a ‘close company’ for tax purposes throughout the period beginning immediately after the application of the money and ending with the payment of interest giving rise to the claim for relief.” The Commissioners for HMRC have now agreed that the statutory provisions may be interpreted as not requiring the company to be close at the time of paying the interest.

  3. In future therefore, Section 360 ICTA 1988 will in effect be construed by HMRC as applying in relation to a company which has ceased to be close after the application of the loan proceeds as they apply in relation to companies which have remained close throughout, provided that the other conditions for relief are satisfied. Claims which have been determined by an agreement taking effect as the determination of an appeal cannot be reopened for the year or years to which the claim related, but subject to this, claims made on the new basis within the statutory time limit will be admitted for all years.

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