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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Loan relationships: connected parties: overview

Connected parties: overview

Although the computation of profits and losses under the loan relationships legislation normally follows generally accepted accounting practice, special rules apply to loan relationships held by connected parties. Part 5 of CTA 09 sets out the special rules on the taxation of loan relationships between connected persons. These rules aim, broadly, to ensure consistency of treatment where connected parties lend to each other.

The guidance is set out in the following manner.

CFM35020 and CFM35030 give a summary of the key points. In many straightforward cases, this guidance will tell you all you need to know. More detailed guidance is set out as follows.

CFM35100 explains the nature of connection between companies and the basic rules that apply to ‘connected company relationships’, namely that loan relationships between connected companies are taxed on the basis that the amortised cost basis of accounting must be used.

CFM35300 deals with the main circumstance in which connection matters - where impairment losses are recognised on debts between connected companies.

CFM35500 covers the rules which limit the amount of impairment losses and group relief that can be claimed by consortium companies.

CFM35800 set out the rules that apply where interest is paid late between connected persons.

Other guidance on connected parties in the Corporate Finance Manual

There are other rules on connected parties that are explained elsewhere in CFM.

  • CFM37200 explains the rules on discounted securities issued between connected parties that are similar in effect to the rules on late paid interest.
  • CFM37730 explains anti-avoidance legislation on ‘hybrid’ securities issued between connected companies.
  • CFM39035 explains anti-avoidance legislation on connected parties deriving benefit from creditor relationships.