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HMRC internal manual

Corporate Finance Manual

Debt cap: intra-group short-term debt: revolving loan accounts

This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

Revolving loan accounts between group companies

While group companies do have arrangements where one borrows a set amount from another, it is also very common for two group companies to maintain a loan account between themselves and to record their aggregate borrowing or lending position relative to one another after cancellation of offsetting debts. It is likely that lending transactions between the two companies lack any separate repayment terms. Instead, there is likely to be an overall limit placed upon the aggregate net amount that one company may borrow from the other, defined by reference to the loan account. This type of arrangement is often referred to as a revolving loan account.

Intercompany loan accounts may comprise a mixture of loans, and of debts incurred from the provision of goods or services or from other intercompany transactions. For loan relationship purposes, each separate amount charged to the account is a separate loan relationship (if it arises from the lending of money) or money debt (if it does not). But it would be extremely burdensome if companies had to unpick revolving loan accounts and identify when each individual advance was repaid, in order to decide whether or not it was a short-term debt.

Moreover, such finance arrangements are often in place for a long period of time. Although particular advances might be quickly repaid, one company may overall remain indebted to the other over a period of many years. Such intra-group accounts may be part of the long-term financing structure of particular companies. It would therefore be inappropriate to classify amounts charged to the account as short-term.

The Corporation Tax (Exclusion from Short-Term Loan Relationships) Regulations 2009 (SI2009/3313) deal with this issue by introducing the concept of a ‘long-term aggregated loan relationship’. These Regulations provide for a number of finance arrangements to be considered together when considering whether the conditions in TIOPA10/S321 apply. CFM92100 explains this in more detail.