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HMRC internal manual

Corporate Finance Manual

Old rules: loan relationships: connection and bad debts: cessation of connection

Ceasing to be connected

This guidance applies to periods of account beginning before 1 January 2005

A company may hold a loan relationship with a connected person, and then stop being connected while still holding the loan relationship. For example, in a group situation, the debtor company may be sold out of the group, perhaps to another group or one or other may become insolvent and the circumstances of the insolvency break the connection.

FA96/SCH9/PARA6C ensured that the creditor company could bring in any debits that related to earlier write-downs in the accounts that were not relieved because of FA96/SCH9/PARA6.

There were special rules dealing with position of the debtor company or creditor company where one or both of the parties to the loan relationship enter insolvency proceedings and they ceased to be connected as a result. See CFM81240 to CFM81270. The current rules are at CFM35400.

Applying para 6C

Para 6C applied where

  • in any accounting period, bad debt relief was denied under Para 6 because of a connection
  • there was no connection at any time in a subsequent accounting period.


Under para 6C(2), after connection ceased, the company would not have brought in any credits for recoveries, or

  • decrease of a bad debt or provision
  • that related to the relief disallowed in a previous accounting period.

Bad debts

Under para 6C(3), the company could not bring in any debits, such as provisions for bad debts, that were previously denied under para 6.