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HMRC internal manual

Corporate Finance Manual

Loan relationships: connected parties: late interest: APs beginning on or after 1 April 2009: arrangements to apply the late interest rule

Arrangements to come within the late interest rule

In some instances groups have entered into arrangements such that a company that is party to a debtor loan relationship comes within the late interest rule, in order to ensure that the deduction for interest payable arises in an accounting period when it is most beneficial to the company or its group.

HMRC’s view is the purpose of the late interest rule is not to enable a group to plan the timing of deductions for interest. Nevertheless, it accepts that arrangements under which the creditor relationship is wholly held by a company located in a non-qualifying territory will meet the terms of CTA09/S374 as amended by FA 2009.

Other more complex arrangements intended to bring the debtor company within the ambit of the late interest rule may involve, for example, the assignment of a small part of the interest entitlement or principal of the original creditor by the creditor company, to a company in a non-qualifying territory.

In HMRC’s view such arrangements are contrary to the spirit of the law and the intentions of Parliament. In addition, the correct technical analysis may be that the debt owed to the company in the non-qualifying territory is not a loan relationship because it does not arise from a transaction of lending money, or is not a non-lending money debt because it is not a debt on which interest arises (CTA09/S479(2)(a)). In such cases the company in the non-qualifying territory will be precluded from standing in the position of creditor, as required by CTA09/S374(1)(b), and hence the late interest rule will not apply to the debtor company.