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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Old rules: loan relationships: connected persons: late interest and discounted securities

Late interest and discounted securities

Special rules apply to interest payable by a company to a connected creditor, where that interest remains unpaid 12 months after the end of the accounting period in which it accrues, where the creditor is outside the loan relationships rules. The interest is deductible as a loan relationships debit only when it is paid. The rule is sometimes known as the ‘interest long stop’.

Similar rules apply to discount accruing on a loan relationship between connected companies or where the security is held by a close company participator.

These rules did not change with effect from 1 January 2005, and the guidance on the current rules applies to earlier accounting periods. See CFM35800 for guidance on late interest and CFM37200 for guidance on discounted securities.

The tables below provide the legislative cross references between the legislation in FA96/SCH9 and the rewritten legislation in CTA09/PT5.

Late interest

Debits for late-paid interest are deferred until the interest is paid, in four cases where the debtor company and the creditor are connected in certain ways, and where the creditor is not within the loan relationships rules.

  FA96/SCH9 CTA09 Guidance
       
Where the debtor and creditor companies are connected within the loan relationships legislation. Para 2(1A) S374 CFM35860
Where the debtor is a close company and the creditor is a participator. Para 2(1B) S375 CFM35870
Where either the debtor or creditor company has a major interest in the other party. Para 2(1C) S377 CFM35920
Where creditor is an occupational pension scheme. Para 2(1D) S378 CFM35950

Relevant/deeply discounted securities

For accounting periods ending after 5 April 2005, the legislation at FA96/SCH13 which applied to ‘relevant discounted securities’ was replaced by ITTOIA05/PT4/CH8, which uses the term ‘deeply discounted securities’.

Under the loan relationships rules, debits for discount accruing on deeply discounted securities are postponed until the security is redeemed, in two cases, where the creditor is not within the loan relationships rules.

  FA96/SCH9 CTA09 Guidance
       
Where the debtor and creditor companies are connected within the loan relationships legislation. Para 17 S407 CFM37230
Where the debtor is a close company and the creditor is a participator. Para 18 S409 CFM37260