Loan relationships had an unallowable purpose

The taxpayer companies were members of the Kwik-Fit group. After the acquisition of the group by a new owner the group’s intra-group loans were reorganised. Various intra-group receivables were assigned to one of the group companies Speedy 1. As part of the reorganisation the interest rate charged on those loans was increased. Speedy 1 had a carried forward non-trading loan relationship deficit (NTD) against which the interest on the intra-group loans owed to it could be set. As a result £48m of NTDs in Speedy 1 were used in two to three years rather than the previously estimated 25 years.

The First-tier Tribunal held that the loans had an unallowable purpose and disallowed interest on both the new and the pre-existing loans. For the pre-existing loans however the tribunal disallowed only the amount by which the interest had increased.

The taxpayer and HMRC appealed.

The...