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HMRC internal manual

Corporate Finance Manual

Deemed loan relationships: money debts other than discounts

Money debts other than discounts treated as loan relationships

CTA09/S479 applies where a company is a creditor or debtor in relation to a money debt that did not arise from the lending of money and

  • interest,
  • foreign exchange gains and losses, or
  • impairment losses, or their reversal, in respect of a ‘business payment’,

arise on the debt, or

  • the money debt (if it arises from a trade or property business) is released by the creditor, and the release occurs on or after 22 April 2009.

A debt is a ‘relevant non-lending relationship’ if it falls into one or more of these categories.

Examples of money debts that will be ‘relevant non-lending relationships’ are:

  • interest-bearing trade debts,
  • judgement debts (if they carry statutory or other interest),
  • deferred consideration, for example on land or share sales, if it carries interest or if exchange differences arise, and
  • tax debts and amounts of tax repayments due (including interest under TMA70/S87 and S87A but not interest under S86).

CTA09/S481(3) provides that the only amounts brought into account under on such relationships are

  • interest
  • exchange gains and losses
  • profits, but not losses, on a related transaction for the transfer of the right to receive interest.
  • impairment losses on ‘business payments and the reversal of those impairment losses (see CFM41030) or
  • a release debit brought into account by the creditor, or a profit brought into account by the debtor, where a trade or property business debt is released (see CFM41060).

Where CTA09/S481 provides for the loan relationships rules to apply to a particular credit or debit, all of the relevant computational provisions - for example, the connected party rules - will have effect where they are relevant.

Example: application of loan relationships rules

An agricultural co-operative (structured as a company) carries on a mutual trade, so that profits or losses from this business are not within the charge to corporation tax. As part of the mutual business, the company incurs a debt to a supplier, on which it is charged interest. The debt is therefore a relevant non-lending relationship, and relief for the interest falls to be given under the loan relationships rules (and only under these rules).

Since, however, the company has entered into the relationship in connection with part of its business that is not within the charge to CT, CTA09/S442(2) applies. For the purposes of CTA09/S441 (the ‘unallowable purposes’ rule) this is not among the business or commercial purposes of the company, and the interest debit is consequently disallowable.