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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: periods beginning on or after 6 December 2010

Periods beginning before 6 December 2010

CFM33120 - CFM33122 explains that for periods beginning before 6 December 2010, CTA09/S311 and S312 override accounting derecognition where certain specific conditions are met. In such cases, the loan relationships rules require the company to bring credits and debits into account on the assumption that the loan relationship has been fully recognised.

Periods beginning on or after 6 December 2010

For periods beginning on or after 6 December 2010, this derecognition anti-avoidance legislation operates as a general rule, wherever an amount is not fully recognised, as a result of the company being party to tax avoidance arrangements. This change to the legislation was made by FA11/S28 and FA11/SCH4. See CFM39240 for more on commencement provisions.

The changes made with effect from that date are as follows.

  • Conditions A to D are repealed.
  • Instead, CTA09/S311 and S312 apply wherever a company is party to a creditor relationship, and as a consequence of its being party to tax avoidance arrangements amounts are not fully recognised in respect of the creditor relationship.
  • Where section 311 applies, section 312 requires amounts to be brought into account for tax purposes as if the creditor relationship had been fully recognised in the accounts, but these amounts do not include debits (CTA09/S312(3)(a)).
  • A new section CTA09/S455A is inserted, to deny a debit arising from the derecognition of a creditor relationship (CFM39230).

For periods beginning on or after 6 December 2010, CTA09/S311 and S312 will apply to a wider range of avoidance schemes based on derecognition than those previously addressed by Conditions A to D, and will come into play where the company is party to ‘tax avoidance arrangements’. These are arrangements to which a company is party if the main purpose, or one of the main purposes of entering them is to obtain a ‘tax advantage’. ‘Tax advantage’ takes its meaning from CTA10/S1139, and ‘arrangements’ includes arrangements, schemes and understandings of any kind.

CFM39220 has more on the application of this rule.