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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Loan relationships: connected parties: late interest: the four cases

Overview of connection

The late interest rules applies in four cases where the debtor company and the creditor are connected.

Connected through control: S374

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’, is controlled by, or is under common control with the lender. See CFM35110 for the meaning of connection and ‘control’.

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

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

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.

As for S374, for accounting periods beginning on or after 1 April 2009, the late interest rule will only bite where the creditor company is located in a tax haven.

Connection through having a major interest: S377

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.

As for S374, for accounting periods beginning on or after 1 April 2009, the late interest rule will only bite where the creditor company is located in a tax haven.

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.