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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Loan relationships: connected companies and impairment: cessation of connection

Ceasing to be connected: no debits for previous impairment

A company may hold a loan relationship with a connected person, and then stop being connected while still holding the loan relationship. For example, in a group situation, the debtor company may be sold out of the group, perhaps to another group or one or other may become insolvent and the circumstances of the insolvency break the connection.

CTA09/S355 applies where in any accounting period an impairment loss has been denied under CTA09/S354 because the companies were connected in earlier accounting periods. No debit can be brought in, in respect of an impairment loss or release of the debt that relates to the earlier period when the companies were connected.

However the now unconnected creditor can get relief for debits for an impairment loss or release under the normal rules:

  • only to the extent that the debt becomes impaired or released after the connection ceases; and
  • only in accounting periods following the one in which the connection ceases.

There are special rules dealing with position of the debtor company or creditor company where one or both of the parties to the loan relationship enter insolvency proceedings and they cease to be connected as a result. See CFM35410 for creditor companies and CFM35420 for debtor companies.