Loans made to a company that was unable to repay

A supplier of specialist birdseed wanted to develop its business so it took a 50% shareholding in BFL a website. The taxpayer also made loans to BFL. In each of its corporation tax returns for the years ended 31 March 2013 to 2015 the taxpayer claimed a non-trading loan relationship debit equal to the loan advanced in the year (CTA 2009 s 302 and s 303). This was on the basis that the loan was unlikely to be repaid in the short term and was therefore provided for in the accounts.

HMRC refused the claims and the taxpayer appealed.

The First-tier Tribunal found that the advances to BFL were repayable with interest. They were shown as such in BFL’s accounts. There was no waiver of interest but it was clear both parties had agreed that repayment need not be made for the time being.

The judge disagreed...