Purpose of loan relationships

The taxpayer companies were members of the Kwik-Fit group. After it as acquired by another business 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.

HMRC said that CTA 2009 s 441 applied and disallowed the interest on the basis that the loan relationships were for an unallowable purpose.

The taxpayers appealed. It was agreed that the debits were loan relationships for the purposes of CTA 2009 and that the original inter-company borrowings had...