CFM35660 - Loan relationships: consortia companies and impairment: amount of restriction: effect of releases

Effect of releases

Under CTA09/S366, where

  • all or part of a loan is released under the relevant consortium creditor relationship (the ‘release amount’), and
  • the debtor company brings in the release as a taxable credit in accordance with an amortised cost basis

then the equivalent amount written down by the creditor is not brought into account for the purposes of calculating the ‘net consortium debit’.

Effect of releases: example

In CFM35650, in Year 1 Rewdon Manufacturing Ltd made a loan of £100,000 to Porwin Ltd. If, instead of writing it down to £40,000, Rewdon formally released £60,000 of the debt, then

  • Porwin Ltd would bring a credit of £60,000 into its accounts
  • Rewdon Manufacturing Ltd would get a debit of £60,000, and
  • there would be no ‘net consortium debit’.

This is because CTA09/S366 excludes an amount equal to the amount credited (£60,000) from the computations of the relevant net debit. In other words, the debit for the amount released can’t be restricted.

Examples of restriction of impairment debits

Ulla group

Ulla (South) Ltd and other group companies made group relief claims up to the maximum, £51,000 in Year 1. The relevant net debit in Year 1 is £50,000. So the impairment debit for Year 1 is restricted to nil.

Rewdon Group

In Year 1, Rewdon Manufacturing Ltd’s fellow subsidiary, Brinfot Ltd, claimed the maximum amount of group relief (£51,000) from Porwin Ltd. The net relevant debit is £60,000. This is restricted by the amount of group relief, so Rewdon Manufacturing Ltd’s impairment debit for Year 1 under Chapter 7 is £9,000.