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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
, see all updates

Old rules: loan relationships: connected persons: exempt circumstances

Financial trader exemption

This guidance applies only to accounting periods starting before 1 January 2005 

FA96/S88 defined exempt circumstances for creditor relationships (debt assets) only, held either directly or through a series of loan relationships. So when the creditor company was connected to the debtor in exempt circumstances, you ignored the connection. The company therefore did not have to

  • apply the accruals basis
  • follow the other provisions that apply to connected persons.

The debtor company would still have had to apply the connected persons rules (FA96/S88(5)).

The exemption existed to avoid penalising companies that were genuinely dealing in debt. For example a company dealing in securities may also be a subsidiary of a bank. It could deal in the bank’s loan notes in exactly the same way as it deals with loan notes of other companies.

The financial trader exemption remains broadly the same. The current rules are explained at CFM35130 onwards.

Conditions for the exemption

The conditions for the exemption that applied to a company are explained at CFM81050.

The conditions for exemption that applied to the debt are explained at CFM81060.