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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Loan relationships: tax avoidance: unallowable purpose: overview

Overview

CTA09/SS441-442 are anti-avoidance provisions. Anti-Avoidance Group is responsible for its overall policy and operation.

SS441-442 disallow any debits where, in an accounting period, a loan relationship or related transaction has an unallowable purpose. It disallows the debits to the extent that, on a just and reasonable apportionment, the debits are attributable to the unallowable purpose. SS441-442 also apply to debits and credits on exchange gains and losses where the loan relationship has an unallowable purpose (see CFM38510).

The term ‘related transaction’ is defined in CTA09/S304(1)- see CFM31120.

Where debits are disallowed, S441(4) & (5) ensures that they cannot be brought into account under any other provisions of the Taxes Acts.

Applying CTA09/SS441-442

The application of SS441-442 is not limited to loan relationship debits that relate to interest. SS441-442 can potentially apply to any debits, for instance, representing

  • accrued discount
  • a decrease in the value taken into account under fair value accounting
  • the creation or increase in an impairment loss
  • the release of a debt
  • a loss on ceasing to be party to a debt, whether by disposal or otherwise.

However, it can only apply to the extent that, on a just and reasonable apportionment, the debit is attributable to the unallowable purpose.

There is more guidance on situations where SS441-442 would not normally apply at CFM38180, and where it would normally apply at CFM38190.