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HMRC internal manual

Savings and Investment Manual

Relief for interest paid: interest in a close company: the ‘full-time working conditions’

Full-time working conditions

ITA07/S393 (3) sets out the ‘full-time working conditions’ referred to SAIM10220. These are that when the interest is paid the individual holds part of the ordinary share capital of the company, and in the period from the use of the loan to the payment of the interest, the greater part of the individual’s time has been spent in the actual management or conduct of the company or an associated company.

‘Actual management or conduct’ should be construed strictly. The shareholder must have a real say in the running of the business. Relief is limited to those who have a significant stake, whether as shareholder or by a combination of shareholding and the possession of significant managerial or technical responsibility in the company. A shareholder will normally be regarded as meeting the ‘full time working condition’ if they are directors of the company or have significant technical or managerial responsibilities. The shareholder must be involved in the overall running and policy making of the company as a whole. Managerial or technical responsibility for just one particular area will not be sufficient, so claims by employees (other than directors) without such significant responsibilities should be refused. Whether or not an individual satisfies the ‘actual management or conduct’ test is a question which can only be answered by consideration of the full facts of any particular case.

‘Associated company’ has the same meaning as in ICTA88/S416 (1) (see second bullet of SAIM10210) but is not (as it is there) confined to qualifying close companies.

‘Greater part of the time’ should normally be interpreted as more than half of the normal working day. Time spent with the company and its associated companies may be aggregated. It should not be contended that ‘his or her time’ means 24 hours a day but a claimant who works half time or less is not to be treated as working for the greater part of his or her time during that part of the relevant period, even though he or she devotes all or most of his or her restricted working hours to the company in question or to its associates.

The work need not be continuous, for example, full time work for more than half the working days in the period would satisfy the condition. Thus a retired director who worked full-time for the company for twenty years after the loan was made, but has been retired for ten years, may still qualify.