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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
Updated
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Loan relationships: tax avoidance: unallowable purpose: definition

Meaning of unallowable purpose

An unallowable purpose is one which is not amongst the business or other commercial purposes of the company (CTA09/S442(1) & (2). Examples of situations where S442(1) & (2) may apply are given at CFM38190, (first and second bullets), and also at BIM64371 in the context of Private Finance Initiative refinancing.

Two purposes are specifically excluded from being amongst the business or other commercial purposes of the company. These are where

  • any part of the company’s activities is not chargeable to corporation tax (CFM38130)
  • the main, or one of the main purposes is a tax avoidance purpose (CFM38140).

The test is the purpose of the loan relationship in the accounting period so a loan relationship may have a business purpose when a company enters into it but have an unallowable purpose at a later date.