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KEN MOODY considers the loan relationship rules and their application to connected party debt
KEY POINTS
- Defining a loan relationship.
- ‘Control’ and connected companies.
- The release of debt between connected and unconnected companies.
- The relevance of accounting treatment of trade debts.
- The importance of a formal deed of release or waiver.
As mentioned in my article Fingers in pies two minor though welcome changes to the loan relationship rules as they apply to connected party debt were introduced by FA 2009.
The first change applied the usual accruals basis where interest on a connected party debt is paid late and seems straightforward. Unfortunately in the writer’s opinion the other change – as discussed below – is only partially successful and misses the larger issue.
Previously where a company was allowed a corporation tax deduction for an expense giving rise to a trade debt...
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