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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: consortia and bad debts: conditions for Para 5A

When did the Para 5A restriction apply?

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

FA96/SCH9/PARA5A applied where a lender company brought in, or had previously brought in, a bad debt under the authorised arrangements for bad debts, and where the following conditions were met:

The lender was a company that was either

  • a member of a consortium that owned a consortium company, or
  • a fellow group company of a consortium member

in any group accounting period. (See CFM35620 for a definition of ‘consortium company’.)

This condition was given by Para 5A(2).

The borrower was

  • the consortium company, or
  • if where the consortium company is a holding company, then a subsidiary of that company.

This condition was given by Para 5A(3).

Definition of group accounting period

A group accounting period was defined in Schedule 9 Para 5A(17) FA 1996 as any accounting period of the consortium member

  • beginning on or after 1 October 2002, or
  • corresponding to such an accounting period.

An accounting period of a group member would correspond with that of a consortium member if

  • the two accounting periods coincided, or
  • the consortium member’s accounting period included more than half of the group member’s accounting period, or
  • the consortium member’s accounting period includes part of the group member’s accounting period, where the rest of the group member’s accounting period doesn’t fall within any accounting period of the consortium member.

See CFM35620 for a current definition.

When the Para 5A restriction applied: example

FD Ltd was a consortium company. It was owned

  • 40% by RT plc, the holding company of a large group
  • 40% by WD Ltd, a subsidiary of KX plc
  • 20% by MC Ltd, a singleton company.

Any amount that was written off a loan made by

  • RT plc (consortium member) or any of its subsidiaries (group members)
  • WD Ltd (consortium member), its holding company or any of its fellow group members, or
  • MC Ltd (consortium member)

to FD Ltd, or if FD Ltd was a holding company, any subsidiary (within S402(3)(b) ICTA 1988) of FD Ltd, would fall within FA96/SCH9/Para 5A.