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Corporation Tax Act 2009

Type Public General Act

Publication 2009-03-26

Last updated 2025-04-01

State In force

Department Statute Law Database

Source legislation.gov.uk

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Credits and debits treated as relating to capital expenditure

320

(1) This section applies if—

(a) an amount for an accounting period in respect of a company's loan relationship relates to any of the matters in section 306A(1),

(b) generally accepted accounting practice allows the amount to be treated in the company's accounts as an amount recognised in determining the carrying value of an asset or liability, and

(c) any profit or loss for corporation tax purposes in relation to that asset or liability will not fall to be calculated in accordance with generally accepted accounting practice.

(2) Despite that treatment, the amount is to be brought into account as a credit or debit for the purposes of this Part, for the accounting period for which it is recognised, in the same way as an amount which is brought into account as a credit or debit in determining the company's profit or loss for that period in accordance with generally accepted accounting practice.

(3) But subsection (2) does not apply to an amount which relates to an intangible fixed asset to which an election under section 730 (writing down at fixed rate: election for fixed-rate basis) applies.

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) If an amount relating to an asset or liability is brought into account as mentioned in subsection (2) as a debit, no debit may be brought into account for the purposes of this Part in respect of—

(a) the writing down of so much of the value of the asset or liability as is attributable to that debit, or

(b) so much of any amortisation or depreciation representing a writing-off of that value as is attributable to that debit.

Credits and debits recognised in equity

321

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Release of debts: cases where credits not required to be brought into account

322

(1) This section applies if—

(a) a liability to pay an amount under a company's debtor relationship is released, and

(b) the release takes place in an accounting period for which an amortised cost basis of accounting is used in respect of that relationship.

(2) The company is not required to bring into account a credit in respect of the release for the purposes of this Part if any of conditions A to E is met.

(3) Condition A is that the release is part of a statutory insolvency arrangement.

(4) Condition B is that the release is not a release of relevant rights and is—

(a) in consideration of shares forming part of the ordinary share capital of the debtor company, or

(b) in consideration of any entitlement to such shares.

(4A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) Condition C is that—

(a) the debtor company meets one of the insolvency conditions (see subsection (6)), and

(b) the debtor relationship is not a connected companies relationship (see section 348).

(5A) Condition D is that the liability is released in consequence of the making of a mandatory reduction instrument or a third country instrument or the exercise of a stabilisation power under Part 1 of the Banking Act 2009 or the exercise of a third-country instrument or a stabilisation power under Schedule 11 to the Financial Services and Markets Act 2023.

(5B) Condition E is that—

(a) the release is neither a deemed release, as defined by section 358(3), nor a release of relevant rights, and

(b) immediately before the release, it is reasonable to assume that, without the release and any arrangements of which the release forms part, there would be a material risk that at some time within the next 12 months the company would be unable to pay its debts.

(6) For the purposes of this section a company meets the insolvency conditions if—

(a) it is in insolvent liquidation,

(b) it is in insolvent administration,

(d) an appointment of a provisional liquidator is in force in relation to the company under section 135 of the Insolvency Act 1986 (c. 45) or Article 115 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or

(e) under the law of a country or territory outside the United Kingdom circumstances corresponding to those mentioned in paragraph (a), (b), (c) or (d) exist.

(6A) In subsections (4) and (5B)(a), “relevant rights” has the same meaning as in section 358.

(7) Section 323(A1) applies for the interpretation of subsection (5B)(b); and the rest of section 323 applies for the interpretation of subsection (6).

(8) For further cases where no credit in respect of the release is to be brought into account, see—

(a) section 358 (exclusion of credits on release of connected companies debts: general), and

(b) section 359 (exclusion of credits on release of connected companies debts during creditor's insolvency).

Meaning of expressions relating to insolvency etc

323

(A1) For the purposes of sections 322(5B) and 323A(1)(b) a company is unable to pay its debts if—

(a) it is unable to pay its debts as they fall due, or

(b) the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.

(1) For the purposes of section 322(6) a company is in insolvent liquidation during the period—

(a) beginning when it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up, and

(b) ending when the winding up is completed or otherwise brought to an end (whether under paragraph 37 or 38 of Schedule B1 to the Insolvency Act 1986 (c. 45) or otherwise).

(2) In subsection (1) “liquidation” has the meaning given in—

(a) section 247(2) of the Insolvency Act 1986, or

(b) Article 6(2) of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)).

(3) For the purposes of section 322(6) a company in administration is in insolvent administration if it entered administration under—

(a) Schedule B1 to the Insolvency Act 1986, or

(b) Schedule B1 to the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)),

at a time when its assets were insufficient for the payment of its debts and other liabilities and the expenses of the administration.

(4) For the purposes of section 322(6) a company is in insolvent administrative receivership if—

(a) an appointment of an administrative receiver is in force in relation to the company, and

(b) the company was put into administrative receivership at a time when its assets were insufficient for the payment of its debts and other liabilities and the expenses of administrative receivership.

(5) In subsection (4) “administrative receiver” has the same meaning as in—

(a) Chapter 1 or 2 of Part 3 of the Insolvency Act 1986 (c. 45), or

(b) Part 4 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)),

and “administrative receivership” is to be read accordingly.

Restriction on debits resulting from revaluation

324

(1) No debit is to be brought into account for the purposes of this Part as a result of the revaluation of an asset representing a creditor relationship of a company except—

(a) an impairment loss, or

(b) a debit resulting from a release by the company of any liability under the relationship.

(2) For the meaning of “impairment loss” see section 476(1).

(3) The reference in subsection (1) to revaluation of an asset includes any case where a provision or allowance is made by the company reducing the carrying value of the asset or of a group of assets including the asset in question.

(3A) Where a company has a hedging relationship between a relevant contract (“the hedging instrument”) and the asset or liability representing the loan relationship, this section does not prevent credits or debits being brought into account in respect of changes in the fair value of the asset or liability which are attributable to any of the risks in respect of which the hedging instrument was intended to act as a hedge.

(4) This section does not affect the debits to be brought into account in respect of exchange gains or losses.

(5) This section does not apply if fair value accounting is used.

Restriction on credits resulting from reversal of disallowed debits

325

(1) No credit is to be brought into account for the purposes of this Part in respect of the reversal of a debit disallowed by section 324(1).

(2) This section does not apply if fair value accounting is used.

(3) See also paragraph 61 of Schedule 2 (restriction on bringing into account credits resulting from reversal of debits disallowed in a period of account beginning before 1 January 2005).

Writing off government investments

326

(1) This section applies if a government investment in a company is written off by the release of a liability to pay any amount under a debtor relationship of the company.

(2) The company is not required to bring into account a credit for the purposes of this Part in respect of the release.

(3) Section 94 of CTA 2010 (write-off of government investment) applies for interpreting the reference in subsection (1) to a government investment in a company being written off as it applies for the purposes of Chapter 7 of Part 4 of that Act.

Disallowance of imported losses etc

327

(1) This section applies for an accounting period of a company (“the loss period”) if—

(a) apart from this section, a loss arising in connection with a loan relationship of the company would fall to be brought into account for the purposes of this Part, and

(b) the loss is wholly or partly referable to a time when the relationship was not subject to United Kingdom taxation.

(2) The amounts brought into account for the loss period for the purposes of this Part must be such as to secure that none of the loss referable to a time when the relationship was not so subject is treated for those purposes as arising in the loss period or any other accounting period of the company.

(3) For the purposes of this section a loss is referable to a time when a relationship is not subject to United Kingdom taxation so far as, at the time to which the loss is referable, the company would not have been chargeable to corporation tax in the United Kingdom on any profits arising from the relationship.

(4) If the company was not a party to the relationship at the time to which the loss is referable, subsection (3) applies as if the reference to the company were a reference to the person who at that time was in the same position as respects the relationship as is subsequently held by the company.

(5) An amount which would be brought into account for the purposes of this Part in respect of any matter apart from this section is treated for the purposes of section 464(1) (amounts brought into account under this Part excluded from being otherwise brought into account) as if it were so brought into account.

(6) Accordingly, that amount must not be brought into account for corporation tax purposes as respects that matter either under this Part or otherwise.

(7) This section does not apply if fair value accounting is used.

Exchange gains and losses

328

(1) The reference in section 306A(1) to the profits and losses arising to a company from its loan relationships and related transactions includes a reference to exchange gains and losses so arising.

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) But subsection (1) does not apply to an exchange gain or loss of a company so far as it—

(a) arises as a result of the translation of the assets, liabilities, income and expenses of all or part of the company's business from the functional currency of the business, or that part of the business, into another currency, and

(b) has been recognised as an item of other comprehensive income.

(3A) In subsection (3)—

(a) the reference to the functional currency of a business or part of a business is a reference to the currency of the primary economic environment in which the business or part operates, and

(b) “assets, liabilities, income and expenses” and “item of other comprehensive income” each has the meaning that it has for accounting purposes.

(3B) No amount is to be brought into account for the purposes of this Part in respect of an exchange gain or loss of an investment company (within the meaning of section 17 of CTA 2010) which would not have arisen but for a change in the company's functional currency (within the meaning of section 17(4) of that Act) as between—

(a) the period of account of the company in which the gain or loss arises, and

(b) a period of account of the company ending in the 12 months immediately preceding that period.

(3C) But subsection (3B) does not apply to an exchange gain or loss arising at a time when an election under section 9A of CTA 2010 (designated currency of UK resident investment company) has effect in relation to the company.

(4) The Treasury may by regulations make provision—

(a) excluding exchange gains or losses of a specified description from being brought into account for the purposes of this Part,

(b) requiring exchange gains or losses of a specified description which would not otherwise be brought into account for the purposes of this Part to be brought into account in specified circumstances,

(c) as to the way in which, including the currency by reference to which, any exchange gains or losses to be brought into account as a result of provision made under paragraph (b) are to be calculated, and

(d) as to the way in which any such exchange gains or losses are to be brought into account.

(4ZA) For the purposes of subsection (4)(b), it does not matter whether the exchange gains or losses would otherwise be excluded from being brought into account as a result of regulations under subsection (4)(a) or otherwise.

(4A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) The reference in subsection (4) to bringing exchange gains or losses into account is a reference to bringing them into account—

(a) for the purposes of this Part as credits or debits arising to a company from its loan relationships, or

(b) for the purposes of corporation tax on chargeable gains.

(7) The regulations may—

(a) make different provision for different cases, and

(b) make provision subject to an election or to other specified conditions.

(8) For the meaning of references to exchange gains or losses from loan relationships, see section 475.

Pre-loan relationship, abortive and pre-trading expenses

Pre-loan relationship and abortive expenses

329

(1) This section applies if—

(a) a company may enter into a loan relationship or related transaction but has not yet done so,

(b) it incurs any expenses for purposes connected—

(i) with entering into it, or

(ii) with giving effect to any obligation which might arise under it, and

(c) had the company entered into the relationship or transaction, the expenses would be expenses within section 306A(1)(c).

(2) The expenses are treated as expenses in relation to which debits may be brought into account in accordance with section 307(2) to the same extent as if the company had entered into the relationship or transaction.

Debits in respect of pre-trading expenditure

330

(1) This section applies if—

(a) a non-trading debit is given for an accounting period of a company for the purposes of this Part, and

(b) within the period of 2 years beginning with the end of the period the company makes an election for the purposes of this section in respect of the debit.

(2) The debit must not be brought into account for the purposes of this Part as a non-trading debit for that period.

(3) Instead, if conditions A and B are met in respect of a trade, the debit—

(a) is treated for the purposes of this Part as if it were a debit for the accounting period in which the company begins to carry on the trade, and

(b) is to be brought into account in accordance with section 297(3) (trading debits).

(4) Condition A is that the company begins to carry on the trade within the period of 7 years after the end of the accounting period for which a non-trading debit is given for the purposes of this Part.

(5) Condition B is that that debit is such that, if it were given for the accounting period in which the company begins to carry on the trade, it would be brought into account by reference to that trade in accordance with section 297(3).

Company ceasing to be party to loan relationship

331

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Repo, stock lending and other transactions

332

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Company moving abroad

Company ceasing to be UK resident

333

(1) If a company ceases to be UK resident, this Part applies as if—

(a) immediately before so ceasing the company had assigned the assets and liabilities which represent its loan relationships for consideration of an amount equal to their fair value at that time, and

(b) it had immediately reacquired them for consideration of the same amount.

(2) Subsection (1) does not apply in relation to an asset or liability so far as immediately after the company ceases to be UK resident the asset is held or the liability is owed—

(a) for the purposes of a permanent establishment of the company in the United Kingdom,

(b) for the purposes of the company's trade of dealing in or developing UK land,

(d) for the purposes of enabling the company to generate other UK property income (within the meaning given by section 5(6)).

(3) Subsection (1) does not apply if—

(a) the conditions in section 344(1)(a) to (c) are met in relation to the company (transferee leaving group after replacing transferor as party to loan relationship), and

(b) it ceases to be UK resident at the same time as it ceases to be a member of the relevant group.

(4) In subsection (3) “the relevant group” has the meaning given in section 344(4).

Non-UK resident company ceasing to hold loan relationship for UK permanent establishment

334

(1) This section applies if an asset or liability representing a loan relationship of a company which is not UK resident ceases to be held or owed for section 333(2) purposes in circumstances not involving a related transaction (but see subsection (3)).

(2) This Part applies as if—

(a) immediately before the asset or liability so ceases the company had assigned it, so far as so ceasing, for consideration of an amount equal to its fair value at that time, and

(b) the company had immediately reacquired it for consideration of the same amount.

(3) This section does not apply if—

(a) the conditions in section 344(1)(a) to (c) are met in relation to the company (transferee leaving group after replacing transferor as party to loan relationship), and

(b) the asset or liability mentioned in subsection (1) ceases to be held or owed for section 333(2) purposes at the same time as the company ceases to be a member of the relevant group.

(4) In subsection (3) “the relevant group” has the meaning given in section 344(4).

(5) An asset or liability ceases to be held or owed for section 333(2) purposes if and in so far as—

(a) it ceases to be held or owed for any purposes mentioned in section 333(2), and

(b) on doing so, it does not begin or continue to be held or owed for any of the other purposes so mentioned.

Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations

Application of this Chapter

Introduction to Chapter

335

(1) This Chapter applies in the cases mentioned in—

(a) section 336 (transfers of loans on group transactions),

(b) section 337 (transfers of loans on insurance business transfers), and

(2) The following sections make provision about how the credits and debits to be brought into account under this Part in those cases are determined—

(a) sections 340 and 341 (which apply in the cases mentioned in sections 336 and 337), and

(b) sections 342 and 343 (which apply in the case mentioned in section 339).

(3) Sections 344 to 346 provide for the treatment of a loan relationship in respect of which section 336 has applied where the company replacing another as a party to a loan relationship later leaves the group of companies of which they were members.

(4) Section 347 (disapplication of Chapter where transferor party to avoidance involving subsequent transfer by transferee) disapplies this Chapter in some circumstances in the cases mentioned in 336 and 337.

(5) For the meaning of references in this Chapter to a company replacing another as a party to a loan relationship, see section 338.

(6) In this Chapter references to a company being a member of a group of companies are to be read in accordance with section 170 of TCGA 1992 (interpretation of sections 171 to 181 of that Act: groups).

Transfers of loans on group transactions

336

(1) The case referred to in section 335(1)(a) is where—

(a) there is a transaction within subsection (2) or a series of transactions within subsection (3), and

(b) as a result one of the companies involved (“the transferee”) directly or indirectly replaces the other (“the transferor”) as a party to a loan relationship.

(2) A transaction is within this subsection if it is a related transaction between two companies which are—

(a) members of the same group, and

(b) within the charge to corporation tax in respect of that transaction.

(3) A series of transactions is within this subsection if it is a series having the same effect as a related transaction between two companies each of which—

(a) has been a member of the same group at any time in the course of that series, and

(b) would be within the charge to corporation tax in respect of such a related transaction.

(4) This Chapter does not apply as a result of this section in relation to—

(a) a transfer of an asset, or

(b) a transfer of rights under, or an interest in, an asset,

as a result of a transaction within subsection (2) or a series of transactions within subsection (3) if immediately before or after the transfer the asset is held for the purposes of a company's long-term business.

(4A) For the purposes of subsection (4)—

(a) in the case of an overseas life insurance company, ignore transfers in relation to assets which are not UK assets (within the meaning of section 117 of FA 2012), and

(b) section 122 of that Act applies as it applies for the purposes of Chapter 8 of Part 2 of that Act.

(5) In this Chapter, in relation to a case within subsection (1), “the transferee” and “the transferor” have the same meaning as in that subsection.

Transfers of loans on insurance business transfers

337

(1) The case referred to in section 335(1)(b) is where—

(a) a transfer between two companies occurs to which this section applies, and

(b) as a result one of the companies (“the transferee”) directly or indirectly replaces the other (“the transferor”) as a party to a loan relationship.

(2) This section applies to the transfers specified in subsection (3), so far as they are not excluded by subsection (4).

(3) They are—

(a) a transfer between two companies of business consisting of the effecting or carrying out of contracts of long-term insurance which has effect under an insurance business transfer scheme, and

(b) any transfer between two companies which is a qualifying overseas transfer.

(3A) In subsection (3)(b) “qualifying overseas transfer” means so much of a transfer of the whole or any part of the business of an overseas life insurance company carried on through a permanent establishment in the United Kingdom as takes place in accordance with an authorisation granted outside the United Kingdom for the purposes of Article 39 of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).

(4) Subsection (3) does not apply to a transfer of an asset, or of rights under or an interest in an asset, if the asset—

(a) was within one of the applicable categories immediately before the transfer, and

(b) is not within that category immediately after it.

(4A) For the purposes of subsection (4)(a) “the applicable categories” means—

(a) in the case of a UK life insurance company, the long-term business categories or a category of assets which are not held for the purposes of its long-term business, and

(b) in the case of an overseas life insurance company, the UK long-term business categories, a category of UK assets which are not held for the purposes of its long-term business or a category of assets which are held by it but which are not UK assets.

(4B) For the purposes of subsection (4A)—

(a) “the long-term business categories” has the same meaning as in section 116 of FA 2012,

(b) “the UK long-term business categories” and “UK assets” have the same meanings as in section 117 of that Act, and

(5) Subsection (6) applies for the purposes of subsection (4) if one of the companies mentioned in subsection (3) is an overseas life insurance company.

(6) An asset is taken as being in the same category both immediately before and immediately after a transfer if the asset—

(a) was in one category immediately before the transfer, and

(b) is within the corresponding category immediately after it.

(7) In this Chapter, in relation to a case within subsection (1), “the transferee” and “the transferor” have the same meaning as in that subsection.

Meaning of company replacing another as party to loan relationship

338

(1) References in this Chapter to one company (“A”) replacing another company (“B”) as a party to a loan relationship include references to A becoming a party to a loan relationship which—

(a) confers rights within subsection (2),

(b) imposes obligations within subsection (2), or

(2) Rights or obligations are within this subsection if they are equivalent to those of B under a loan relationship to which B has previously ceased to be a party.

(3) For the purposes of subsection (2), A's rights under a creditor relationship are equivalent to rights under another creditor relationship if each set of rights gives the holder of an asset representing the relationship in question—

(a) the same rights against the same persons as to capital, interest and dividends, and

(b) the same remedies to enforce those rights.

(4) For the purposes of subsection (3), any difference in—

(a) the total nominal amounts of the assets representing each relationship,

(b) the form in which they are held, or

is ignored.

(5) For the purposes of subsection (2), A's obligations under a debtor relationship are equivalent to obligations under another debtor relationship if each set of obligations subjects the holder of the liability representing the relationship in question to—

(a) the same obligations to the same persons as to capital, interest and dividends, and

(b) the same remedies to enforce those obligations.

(6) For the purposes of subsection (5), any difference in—

(a) the total nominal amounts of the assets representing the creditor relationship corresponding to each relationship,

(b) the form in which those assets are held, or

is ignored.

Issues of new securities on certain cross-border reorganisations

339

(1) The case referred to in section 335(1)(c) is where each of conditions A to D is met.

(2) Condition A is that sections 127 to 130 of TCGA 1992 (reorganisations: equation of original shares and new holding)—

(a) apply in relation to an exchange as a result of section 135(3) of that Act (which provides for sections 127 to 130 to apply to an exchange of securities for those in another company as if it were a reorganisation), or

(b) would so apply but for section 116(5) of that Act (which disapplies sections 127 to 130 where the original shares or the new holding consist of or include a qualifying corporate bond).

(3) Condition B is that the original shares consist of or include an asset representing a loan relationship.

(4) Condition C is that company A is resident in one member State and company B is resident in another member State.

(5) For the purposes of this section a company is resident in a member State if—

(a) it is within a charge to tax under the law of the State as being resident for that purpose, and

(b) it is not regarded, for the purpose of any double taxation relief arrangements to which the State is a party, as resident in a territory not within a member State.

(6) Condition D is that neither Chapter 13 (European cross-border transfers of business) nor Chapter 14 (European cross-border mergers) applies in relation to the exchange.

(7) In this section—

(a) “company A” and “company B” have the same meaning as in section 135 of TCGA 1992,

(b) “original shares” has the same meaning as it has for the purposes of sections 126 to 131 of that Act, as applied by section 135 of that Act, and

(c) “receiving company” means the company to which the issue of shares in or debentures of company B mentioned in section 135(1) of that Act is made.

(8) If company B is a company to which section 135(5) of TCGA 1992 applies (companies with no share capital), the reference in subsection (7)(c) to the shares in or debentures of company B includes a reference to any interests in the company possessed by its members.

Continuity of treatment: transfer of loan at notional carrying value

Group transfers and transfers of insurance business: transfer at notional carrying value

340

(1) This section applies in the cases mentioned in—

(a) section 336 (transfers of loans on group transactions), and

(b) section 337 (transfers of loans on insurance business transfers).

(2) The credits and debits to be brought into account for the purposes of this Part in respect of the loan relationship referred to in section 336(1)(b) or section 337(1)(b) are determined in accordance with subsections (3) to (5).

(3) For the accounting period in which the transaction or, as the case may be, the first of the series of transactions takes place, the transferor is treated as having entered into that transaction for consideration of an amount equal to the notional carrying value of the asset or liability representing the relationship (see subsection (6)).

(4) For any accounting period in which the transferee is a party to the relationship, it is treated as if it had acquired the asset or liability representing the relationship for consideration of an amount equal to its notional carrying value.

(5) If a discount arises in respect of the transaction or series of transactions, the consideration is increased for the purposes of subsection (3) (but not subsection (4)) by the amount of the discount.

(6) For the purposes of this section—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) section 480(5) (when discount arises) applies as it applies for the purposes of section 480, and

(c) “notional carrying value”, in relation to an asset or liability, means the amount which would have been its tax-adjusted carrying value based on the accounts of the transferor if a period of account had ended immediately before the date when the transferor ceased to be a party to the loan relationship.

(7) Part 4 of TIOPA 2010 (provision not at arm's length) does not apply in relation to the amounts in respect of which credits or debits are to be brought into account under this section.

(8) This section is subject to sections 332 and 341.

Transferor using fair value accounting

341

(1) This section applies instead of section 340 if, in a case where that section would otherwise apply, the transferor is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship (see subsection (5)).

(2) The amount which is to be brought into account by the transferor in respect of the transaction or the series of transactions referred to in section 340(3) (“the transferor's amount”) is—

(a) if an asset is to be brought into account, its fair value as at the date when the transferee becomes party to the loan relationship, or the fair value of the rights under or interest in it as at that date, and

(b) if a liability is to be brought into account, its fair value as at that date.

(3) For any accounting period in which the transferee is a party to the loan relationship, for the purpose of determining the credits and debits to be brought into account in respect of the relationship for the purposes of this Part, the transferee is treated as if it had acquired the asset or liability representing the relationship for consideration of an amount equal to the transferor's amount.

(4) If a discount arises in respect of the transaction or series of transactions, the transferor's amount is increased for the purposes of subsection (2) (but not subsection (3)) by the amount of the discount.

(5) The transferor is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship only if the credits and debits to be brought into account for the purposes of this Part as respects the relationship are determined on that basis.

(6) It does not matter for the purposes of subsection (5) if the transferor does not otherwise use fair value accounting in respect of the loan relationship.

(7) For the purposes of this section, section 480(5) (when discount arises) applies as it applies for the purposes of section 480.

(8) This section is subject to section 332.

Issues of new securities on reorganisations: disposal at notional carrying value

342

(1) This section applies in the case mentioned in section 339.

(2) For the purposes of this Part such debits and credits are to be brought into account as would be brought into account if the exchange were a disposal of the asset representing the loan relationship referred to in section 339(3) for consideration of an amount equal to its notional carrying value.

(3) For the purposes of this section, the notional carrying value of that asset is the amount that would have been its tax-adjusted carrying value based on the accounts of the receiving company if a period of account had ended immediately before the date when the exchange occurred.

(4) In this section—

“receiving company” has the meaning given in section 339(7).

(5) This section is subject to section 343.

Receiving company using fair value accounting

343

(1) This section applies instead of section 342 if, in a case where that section would otherwise apply, the receiving company is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship constituting or included in the original shares.

(2) The amount which is to be brought into account by the receiving company in respect of the exchange (“the disposal amount”) is the fair value of the asset representing the loan relationship as at the date when the exchange occurred, or of the rights under or interest in that relationship as at that date.

(3) For any accounting period in which company B is a party to the loan relationship, for the purpose of determining the credits and debits to be brought into account in respect of the relationship for the purposes of this Part, company B is treated as if it had acquired the asset representing the relationship for consideration of an amount equal to the disposal amount.

(4) Subsections (5) and (6) of section 341 apply for the purposes of this section as they apply for the purpose of that section, taking references in that section to the transferor as references to the receiving company.

(5) In this section “company B”, “original shares” and “receiving company” have the meaning given in section 339(7).

Transferee leaving group after replacing transferor as party to loan relationship

Introduction

344

(1) Sections 345 and 346 apply if—

(a) this Chapter applies in the case mentioned in section 336 (transfers of loans on group transactions),

(b) section 341 (transferor using fair value accounting) does not apply, and

(c) before the end of the relevant 6 year period and while still a party to the relevant loan relationship, the transferee ceases to be a member of the relevant group.

(2) But the transferee is not treated for the purposes of this section and sections 345 and 346 as having left the relevant group if—

(a) an asset or liability which represents a loan relationship is transferred in the course of a transfer or merger in relation to which Chapter 13 (European cross-border transfers of business) or Chapter 14 (European cross-border mergers) applies, and

(b) the transferee ceases to be a member of the relevant group in consequence of the transfer or merger.

(3) In a case where subsection (2) applies, if the transferee becomes a member of another group in consequence of the transfer or merger, it is treated for the purposes of this section and sections 345 and 346 as if the relevant group and the other group were the same.

(4) In this section and sections 345 and 346—

“the relevant 6 year period” means the period of 6 years following—in a case where section 340 applies because of a transaction within section 336(2) (“case A”), that transaction, orin a case where section 340 applies because of a series of transactions within section 336(3) (“case B”), the last transaction of that series,

“the relevant group” means—in case A, the group mentioned in section 336(2), andin case B, the group mentioned in section 336(3), and

“the relevant loan relationship” means the loan relationship mentioned in section 336(1)(b).

Transferee leaving group otherwise than because of exempt distribution

345

(1) This section applies if—

(a) the transferee ceases to be a member of the relevant group, and

(b) it does not so cease just because of a distribution which is exempt as a result of section 1075 of CTA 2010 (exempt distributions).

(2) ... This Part applies as if—

(a) the transferee had assigned the asset or liability representing the relevant loan relationship immediately before ceasing to be a member of the relevant group,

(b) the assignment had been for consideration of an amount equal to the fair value of the asset or liability at that time, and

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transferee leaving group because of exempt distribution

346

(1) This section applies if—

(a) the transferee ceases to be a member of the relevant group just because of a distribution which is exempt as a result of section 1075 of CTA 2010 (exempt distributions), and

(b) there is a chargeable payment within the meaning of section 1088(1) of CTA 2010 (chargeable payments connected with exempt distributions) within 5 years after the making of that distribution.

(2) ... This Part applies as if—

(a) the transferee had assigned the asset or liability representing the relevant loan relationship immediately before the chargeable payment was made,

(b) the assignment had been for consideration of an amount equal to the fair value of the asset or liability immediately before the transferee ceased to be a member of the relevant group, and

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Disapplication of Chapter where transferor party to avoidance

347

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 5 — Connected companies relationships: introduction and general

Introduction: meaning of “connected companies relationship”

348

(1) This Chapter contains some general rules relating to connected companies relationships.

(2) For the purposes of this Part a debtor relationship of a company is a connected companies relationship if there is a connection between—

(a) the company, and

(b) another company standing in the position of a creditor as respects the debt in question.

(3) For the purposes of subsection (2) a company is treated as standing in the position of a creditor if it indirectly stands in that position by reference to a series of loan relationships or relevant money debts.

(4) For the purposes of this Part a creditor relationship of a company is a connected companies relationship if there is a connection between—

(a) the company, and

(b) another company standing in the position of a debtor as respects the debt in question.

(5) For the purposes of subsection (4) a company is treated as standing in the position of a debtor if it indirectly stands in that position by reference to a series of loan relationships or relevant money debts.

(6) For the purposes of this Part, if a loan relationship is a connected companies relationship at any time in an accounting period, it is treated as being such a relationship for the period.

(7) In this section “relevant money debt” means a money debt which would be a loan relationship if a company directly stood in the position of creditor or debtor.

(8) Section 466 (companies connected for an accounting period) applies for the purposes of this section.

Application of amortised cost basis to connected companies relationships

349

(1) This section applies if a loan relationship is a connected companies relationship for an accounting period.

(2) The credits and debits which are to be brought into account for the purposes of this Part in respect of the relationship for the period are determined on an amortised cost basis of accounting.

(2A) Where—

(a) a company has a hedging relationship between a relevant contract (“the hedging instrument”) and the asset or liability representing the loan relationship, and

(b) the loan relationship is dealt with in the company's accounts on the basis of fair value accounting,

it is to be assumed in applying an amortised cost basis of accounting for the purpose of subsection (2) that the hedging instrument has where possible been designated for accounting purposes as a fair value hedge of the loan relationship.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Companies beginning to be connected

350

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Companies ceasing to be connected

351

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

352

(1) This section applies in an accounting period if—

(a) section 349 applies in respect of a creditor relationship of a company for the period, and

(b) a related transaction takes place in relation to the relationship in the period.

(2) The credits brought into account in respect of the relationship for the period for the purposes of this Part must not be less than they would have been if—

(a) the transaction had not taken place, and

(b) no amounts had accrued after the transaction took place.

(3) The debits brought into account in respect of the loan relationship for the period for the purposes of this Part must not be more than they would have been in that case.

(3A) Subsections (2) and (3) do not affect the credits or debits to be brought into account for the purposes of this Part in respect of changes in the fair value of the asset that are attributable to changes in the corresponding market rate.

(3B) Subsection (3A) is subject to section 354 (exclusion of debits for impaired or released connected companies debts).

(3C) In relation to a debt, “the corresponding market rate” at any time is the lowest rate at which a company of good financial standing might at that time expect to be able to borrow money at arm's length in the currency applicable to the debt, for repayment at the same time as the debt and otherwise on similar terms.

(4) Nothing in this section affects the credits or debits to be brought into account for the purposes of this Part in respect of exchange gains or losses arising from a debt.

Chapter 6 — Connected companies relationships: impairment losses and releases of debts

Introduction

Introduction to Chapter

353

(1) This Chapter contains rules about impairment losses and releases of debts in the case of companies connected with other companies.

(2) In particular, see—

(a) sections 354 to 357 (which prevent debits in respect of impairment losses and release debits from being brought into account in the case of connected companies relationships, subject to some exceptions),

(b) sections 358 to 360 (which exclude credits in respect of the release of debts or the reversal of impairments from being brought into account in that case,subject to some exceptions), and

(c) sections 361 to 363 (which treat debt releases as occurring when impaired debts become held by companies which might otherwise benefit from the exclusion under section 358).

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) Section 466 (companies connected for an accounting period) applies for the purposes of sections 354 to 360.

(5) For the circumstances in which companies are connected for sections 361 and 362, see section 363.

(6) For the meaning of “impairment loss and release debit” see section 476(1).

Exclusion of debits for impaired or released connected companies debts

354

(1) The general rule is that no impairment loss or release debit in respect of a company's creditor relationship is to be brought into account for the purposes of this Part for an accounting period if section 349 (application of amortised cost basis to connected companies relationship) applies to the relationship for the period.

(2) That rule is subject to—

(a) section 356 (swapping debt for equity), and

(b) section 357 (insolvent creditors).

(2A) Where the carrying value of an asset representing the creditor relationship has at any time been adjusted as a result of the asset being the hedged item under a designated fair value hedge, the rule in subsection (1) does not prevent a credit or debit being brought into account for the purposes of this Part in respect of any reversal of that adjustment.

(3) Nothing in this section affects the debits to be brought into account for the purposes of this Part in respect of exchange gains or losses arising from a debt.

Cessation of connection

355

(1) This section applies if, in the case of a creditor relationship of a company—

(a) an impairment loss or release debit is excluded by section 354 from being brought into account for any accounting period, and

(b) there is a later accounting period for which the creditor relationship in respect of the debt is not a connected companies relationship.

(2) So far as any amount represents the impairment loss or release debit, no debit may be brought into account in respect of it—

(a) for the first accounting period within subsection (1)(b), or

(b) for any subsequent such accounting period.

Exception to section 354: swapping debt for equity

356

(1) An impairment loss or release debit in relation to a liability to pay any amount to a company (“the creditor company”) under its creditor relationship is not prevented from being brought into account by section 354 if conditions A, B and C are met.

(2) Condition A is that the creditor company treats the liability as discharged.

(3) Condition B is that it does so in consideration of—

(a) any shares forming part of the ordinary share capital of the company on which the liability would otherwise have fallen, or

(b) any entitlement to such shares.

(4) Condition C is that there would be no connection between the two companies for the accounting period in which the consideration is given if the question whether there is such a connection were determined by reference only to times before the creditor company—

(a) acquired possession of the shares, or

(b) acquired any entitlement to them.

Exception to section 354: insolvent creditors

357

(1) An impairment loss or release debit is not prevented from being brought into account by section 354 in relation to an amount accruing to a company (“the creditor”) if—

(a) condition A, B, C, D or E is met in relation to the creditor, and

(b) the amount accrues to the creditor at a time which is the relevant time for the condition in question.

(2) Condition A is that the creditor is in insolvent liquidation, and for this condition the relevant time is any time in the course of the winding up.

(3) Condition B is that the creditor is in insolvent administration, and for this condition the relevant time is any time in the course of the administration.

(4) Condition C is that the creditor is in insolvent administrative receivership, and for this condition the relevant time is any time when the appointment of the administrative receiver is in force.

(5) Condition D is that an appointment of a provisional liquidator is in force in relation to the creditor under section 135 of the Insolvency Act 1986 (c. 45) or Article 115 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), and for this condition the relevant time is any time when the appointment is in force.

(6) Condition E is that under the law of a country or territory outside the United Kingdom, circumstances exist corresponding to those described in condition A, B, C or D, and for this condition the relevant time is any time corresponding to that described in the case of the condition in question.

(7) Section 323 applies for interpreting this section as it applies for interpreting section 322(6).

Exclusion of credits for connected companies debts on release or reversal of impairments

Exclusion of credits on release of connected companies debts: general

358

(1) This section applies if—

(a) a liability to pay an amount under a debtor relationship of a company (“D”) is released, and

(b) the release takes place in an accounting period for which—

(i) an amortised cost basis of accounting is used in respect of the relationship, and

(ii) the relationship is a connected companies relationship.

(2) D is only required to bring a credit into account in respect of the release for the purposes of this Part if

(a) it is a deemed release, or

(b) it is a release of relevant rights.

(3) In subsection (2) “deemed release” means a release which is deemed to occur because of—

(a) section 361 (acquisition of creditor rights by connected company at undervalue), or

(b) section 362 (parties becoming connected where creditor's rights subject to impairment adjustment).

(4) For the purposes of this section “relevant rights” means rights of a company (“C”) that—

(a) were acquired by C, before the day on which F(No2)A 2015 was passed, in circumstances that, but for the application of the old corporate rescue exception or the old debt-for-debt exception, would have resulted in a deemed release under section 361(3), or

(b) were acquired by another company before that day in such circumstances and transferred to C by way of an assignment or assignments.

(4A) In subsection (4)(a)—

(a) “the old corporate rescue exception” means the exception in section 361A (as it had effect before F(No2)A 2015);

(b) “the old debt-for-debt exception” means the exception in section 361B (as it had effect before that Act).

(5) The amount of the credit that D is required to bring into account in respect of a release of relevant rights is—

(a) the amount of the discount received on the acquisition, less

(b) the sum of any credits brought into account in respect of that amount (whether in the accounting period in which the release takes place or in a previous accounting period) by C or, in a case within subsection (4)(b), by the company that acquired the rights or any company to which the rights were subsequently assigned.

(6) A reference in subsection (5) to the amount of the discount received on the acquisition is to the amount that would have been treated as released under section 361(4) on the acquisition, but for the application of the corporate rescue exception or the debt-for-debt exception.

(7) Where the carrying value of a liability representing the debtor relationship has at any time been adjusted as a result of the liability being the hedged item under a designated fair value hedge, this section does not prevent a credit or debit being brought into account for the purposes of this Part in respect of any reversal of that adjustment.

(8) Nothing in this section affects the credits or debits to be brought into account for the purposes of this Part in respect of exchange gains or losses arising from a debt.

Exclusion of credits on release of connected companies debts during creditor’s insolvency

359

(1) This section applies if—

(a) a liability to pay an amount under a company's debtor relationship is released,

(b) the release takes place in an accounting period for which an amortised cost basis of accounting is used in respect of that relationship,

(d) immediately before the time when any of those conditions was first met the relationship was a connected companies relationship, and

(e) immediately after that time it was not such a relationship.

(2) The company is not required to bring into account a credit in respect of the release for the purposes of this Part.

(3) Where the carrying value of a liability representing the debtor relationship has at any time been adjusted as a result of the liability being the hedged item under a designated fair value hedge, this section does not prevent a credit being brought into account for the purposes of this Part in respect of any reversal of that adjustment.

Exclusion of credits on reversal of impairments of connected companies debts

360

(1) If an impairment loss is prevented from being brought into account by section 354, no credit in respect of any reversal of the impairment may be brought into account for the purposes of this Part.

(2) Nothing in this section affects the credits to be brought into account for the purposes of this Part in respect of exchange gains or losses arising from a debt.

Deemed debt releases on impaired debts becoming held by connected company

Acquisition of creditor rights by connected company at undervalue

361

(1) This section applies if—

(a) a company (“D”) is a party to a loan relationship as debtor,

(b) another company (“C”) becomes a party to it as creditor,

(d) in a case where the person from whom C acquires its rights under the loan relationship is a company, in the period of account in which C acquires them there is no connection between C and that company,

(e) the amount or value of any consideration given by C for the acquisition is less than the pre-acquisition carrying value (see subsection (5)), and

(f) the equity-for-debt exception (see section 361C) does not apply.

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) C is treated as releasing its rights under the loan relationship when it acquires them.

(4) The amount treated as released is the amount of the difference referred to in subsection (1)(e).

(5) In subsection (1)(e) “the pre-acquisition carrying value” means the amount which would be the carrying value of the liability under the loan relationship in D's accounts if a period of account had ended immediately before C became a party to it.

(6) For the purposes of subsection (5) the carrying value is determined taking no account of—

(a) accrued amounts, or

(b) amounts paid or received in advance.

(7) Subsections (3) and (4) are subject to section 361D (corporate rescue: debt released shortly after acquisition).

Parties becoming connected where creditor’s rights subject to impairment adjustment

362

(1) This section applies if—

(a) a company (“D”) is a party to a loan relationship as debtor, and

(b) another company (“C”) which—

(i) is a party to the loan relationship as creditor, and

(ii) is not connected with D,

becomes connected with D, ...

(2) C is treated as releasing its rights under the loan relationship when C and D become connected.

(3) The amount treated as released is the amount (if any) by which the pre-connection carrying value in D's accounts exceeds the pre-connection carrying value in C's accounts.

(4) In subsection (3)—

“the pre-connection carrying value in D's accounts” means the amount that would be the carrying value of the liability representing the loan relationship in D's accounts if a period of account had ended immediately before C and D became connected, and

“the pre-connection carrying value in C's accounts” means—in any case where C was a party to the loan relationship as creditor on the last day of the period of account ending immediately before the one in which C and D became connected, the cost of the asset representing the loan relationship which would be given on that day on an amortised cost basis of accounting, andin any other case, the amount or value of any consideration given by C for the acquisition of the asset representing the loan relationship.

(5) For the purposes of subsection (4) no account is to be taken of—

(a) accrued amounts, or

(b) amounts paid or received in advance, ...

(6) Subsections (2) and (3) are subject to section 362A (corporate rescue: debt released shortly after connection arises).

Companies connected for sections 361 and 362

363

(1) For the purposes of sections 361 to 362A there is a connection between two companies at any time if condition A or B is met at that time.

(2) Condition A is that one company has control of the other.

(3) Condition B is that both companies are under the control of the same person (but see subsection (6)).

(4) For the purposes of sections 361 to 362A there is a connection between two companies in a period of account if there is a connection between them (within subsection (1)) at any time in the period.

(5) Section 472 (meaning of “control”) applies for the purposes of this section.

(6) Condition B is not taken to be met just because two companies have been under the control of—

(a) the Crown,

(b) a Minister of the Crown,

(d) a Northern Ireland department,

(e) a foreign sovereign power, or

(f) an international organisation.

(7) Section 468 (connection between companies to be ignored in some circumstances) applies for the purposes of this section as it applies for the purposes of the provisions which apply section 466, taking references in sections 468 and 469 to the accounting period as references to the period of account.

(8) For the meaning of “international organisation”, see section 476(2) and (3).

Chapter 7 — Group relief claims involving impaired or released consortium debts

Introduction to Chapter

364

(1) This Chapter applies if—

(a) there is (or was) a relevant consortium creditor relationship (see subsection (2)), and

(b) either—

(i) an impairment loss is or has been brought into account for the purposes of this Part for any group accounting period by the creditor, or

(ii) a debit in respect of a release of liability under the relationship is or has been so brought into account.

(2) For the purposes of this Chapter a relationship is a relevant consortium creditor relationship if—

(a) it is a creditor relationship of—

(i) a company (the “member company”), which is a member of a consortium by which a consortium company is owned, or

(ii) a company (a “group member”) which is a member of the same group of companies as the member company but is not itself a member of the consortium, and

(b) the consortium company or, if that company is a holding company, a consortium company which is a subsidiary of that company is (or was) the debtor (the “debtor consortium company”).

(3) The provisions of this Chapter—

(a) reduce debits for impairment losses and release debits under relevant consortium creditor relationships where an amount surrendered as group relief by the consortium company is claimed by a member company or group member (see section 365),

(b) provide for a corresponding reduction in credits in respect of such relationships where a reduction within paragraph (a) has occurred (see section 367),

(c) reduce claims for group relief where debits within paragraph (a) for earlier group accounting periods exceed reductions within paragraph (b) (see section 368), and

(d) provide for such claims to be carried forward where they exceed such debits (see section 369).

(4) In this Chapter “release debit” means a debit in respect of a release of liability under a relevant consortium creditor relationship, and

“group relief” means—

group relief under Part 5 of CTA 2010 (see section 97(2) of that Act), and

group relief for carried-forward losses under Part 5A of CTA 2010 (see section 188AA(4) of that Act).

(5) If section 143, 144 or 188DH of CTA 2010 (which limit the amount of group relief to be given in certain cases involving a consortium) applies, effect must be given to that section before effect is given to this Chapter.

(6) Expressions defined in this section have the same meaning in the other provisions of this Chapter, and sections 370 and 371 also apply for the interpretation of this Chapter.

(7) For the meaning of “impairment loss” see section 476(1).

Reduction of impairment loss debits where group relief claimed

365

(1) This section applies for any group accounting period for which there is a net consortium debit.

(2) For the purposes of this Chapter there is a net consortium debit for a group accounting period if—

(a) the total of the impairment losses and release debits brought into account for that period in respect of relevant consortium creditor relationships by—

(i) the member company, and

(ii) every group member,

exceeds

(b) the total credits so brought into account by them in connection with debts owed by the companies which are the debtor consortium companies in respect of those relationships.

(3) The net consortium debit is equal to that excess.

(4) If there is a claim for that group accounting period by the member company or a group member for group relief in respect of an amount which may be surrendered as group relief by the debtor consortium companies, the debits brought into account in respect of the impairment losses and the release debits mentioned in subsection (2)(a) are reduced.

(5) The amount of reduction in the case of each of the debits referred to in subsection (4) (“the relevant debits”) is calculated as follows.

Step 1

Find the total amount which—

(a) may be surrendered as group relief by the debtor consortium companies, and

(b) is claimed as group relief for the group accounting period by the member company or any group member.

Step 2

If the amount found at Step 1 does not exceed the net consortium debit, apportion the amount found at Step 1 between the relevant debits in proportion to their respective amounts.

If the amount found at Step 1 exceeds the net consortium debit, apportion so much of the amount found at Step 1 as does not exceed it between the relevant debits in proportion to their respective amounts.

(6) This section is subject to section 366.

Effect where credit for release brought into account on amortised cost basis

366

(1) This section applies if—

(a) a company releases liability under a relevant consortium creditor relationship of the company (“the release amount”), and

(b) the debtor consortium company brings into account an amount in respect of the release for any accounting period in accordance with an amortised cost basis of accounting.

(2) An amount equal to the release amount is treated for the purposes of this Chapter as not being a debit brought into account for that period in relation to the relevant consortium creditor relationship.

Reduction of credits exceeding impairment losses

367

(1) This section applies if, apart from this section, for any group accounting period—

(a) the total of the impairment losses and release debits brought into account for that period in respect of relevant consortium creditor relationships by—

(i) the member company, and

(ii) every group member,

is less than

(b) the total credits so brought into account by them in connection with debts owed by the companies which are the debtor consortium companies in respect of those relationships.

(2) Those credits are reduced (but not below nil) in accordance with subsection (3).

(3) The amount of reduction in the case of each credit is calculated as follows.

Step 1

Find the total amount by which the debits in respect of the relationships for previous group accounting periods have been reduced under section 365(4).

Step 2

Deduct the total amount by which credits have previously been reduced under this section from the amount found at Step 1.

Step 3

Apportion the amount found at Step 2 between the credits in proportion to their respective amounts.

Reduction of claims where there are earlier net consortium debits

368

(1) This section applies if—

(a) for any group accounting period there is a claim by the member company or a group member for group relief in respect of an amount which may be surrendered as group relief by debtor consortium companies, and

(b) the total amount of the net consortium debits for earlier group accounting periods in respect of the relevant consortium creditor relationships exceeds any reductions in respect of those debits falling to be made under section 365(4).

(2) In this section that excess is referred to as “the unreduced debits amount”.

(3) If—

(a) the claim is the only claim for that period, and

(b) it exceeds the unreduced debits amount,

the claim is reduced by the unreduced debits amount.

(4) If—

(a) the claim is not the only claim for that period, and

(b) the total of the claims exceeds the unreduced debits amount,

the claim is reduced by the same proportion of the unreduced debits amount as the claim bears to that total.

(5) In any other case, the claim is reduced to nil.

Carry forward of claims where there are no net consortium debits

369

(1) This section applies if for any group accounting period there is—

(a) a claim by the member company or a group member for group relief in respect of an amount which may be surrendered as group relief by debtor consortium companies (as reduced under section 368, if it applies), and

(b) no net consortium debit in respect of the relevant consortium creditor relationships.

(2) The claim (as so reduced) is carried forward and treated for the purposes of section 365—

(a) as increasing any such claim for group relief made by the claimant company for its next accounting period, or

(b) if apart from this subsection there would be no such claim, as being such a claim.

Group accounting periods

370

(1) In this Chapter “group accounting period” means—

(a) any accounting period of the member company beginning on or after 1 October 2002, or

(b) any accounting period of a group member which—

(i) begins on or after that date, and

(ii) corresponds to such an accounting period of the member company.

(2) Any such accounting period of the member company and any such corresponding accounting periods of group members are treated for the purposes of this Chapter as being the same accounting period.

(3) For the purposes of this Chapter an accounting period of a group member corresponds to an accounting period of the member company if condition A, B or C is met.

(4) Condition A is that the periods coincide.

(5) Condition B is that the accounting period of the member company includes more than half of the accounting period of the group member.

(6) Condition C is that—

(a) the accounting period of the member company includes part of the accounting period of the group member, and

(b) the remainder of that period is not within any accounting period of the member company.

Interpretation

371

(1) In this Chapter—

“consortium company” means a trading company, as defined by section 185(1) of CTA 2010, that is owned by a consortium or a holding company that is so owned,

“debtor consortium company” has the same meaning as in section 364 (see section 364(2)),

“group accounting period” is to be read in accordance with section 370,

“group member” has the same meaning as in section 364 (see section 364(2)),

“group relief” has the meaning given by section 364(4),

“holding company” has the same meaning as in Part 5 of CTA 2010 (see section 185(2) of that Act),

“member”, in relation to a consortium, has the same meaning as in Part 5 of CTA 2010 (see section 153(2) of that Act),

“member company” has the same meaning as in section 364 (see section 364(2)),

“net consortium debit” is to be read in accordance with section 365(2) and (3),

“relevant consortium creditor relationship” is to be read in accordance with section 364(2), and

“subsidiary”, in relation to a company which is a holding company, means a trading company (as defined by section 185(1) of CTA 2010) that, by reference to that holding company, is owned by a consortium by virtue of section 153(3) of that Act.

(2) Any reference in this Chapter to a company being owned by a consortium is to be read in accordance with section 153 of CTA 2010.

(3) Any reference in this Chapter to two companies being members of the same group of companies is a reference to those companies being members of the same group of companies for the purposes of Part 5 of CTA 2010 (group relief) (see section 152 of that Act).

Chapter 8 — Connected parties relationships: late interest

Introduction to Chapter

372

(1) This Chapter makes provision about the debits to be brought into account for the purposes of this Part in cases where certain conditions relating to interest that is not paid or is paid late are met and there is a connection between the parties to the loan relationship.

(2) For those conditions and the rule that applies in those cases, see section 373 (late interest treated as not accruing until paid in some cases).

(3) For the kinds of connections where the rule applies, see—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) section 375 (loans to close companies by participators etc), and

(d) section 378 (loans by trustees of occupational pension schemes).

(4) For the meaning of “standing in the position of a creditor” in this Chapter, see section 379(1) (persons indirectly standing in the position of creditor).

Late interest treated as not accruing until paid in some cases

373

(1) Debits relating to interest payable under a company's debtor relationship are to be brought into account for the purposes of this Part on the assumption that the interest does not accrue until it is paid if—

(a) conditions A and B are met, and

(b) the case is within section 375 or 378.

(2) Condition A is that the interest is not paid within the period of 12 months following the end of the accounting period in which it would be treated as accruing apart from subsection (1).

(3) Condition B is that credits representing the full amount of the interest are not brought into account for the purposes of this Part in respect of the corresponding creditor relationship for any accounting period.

(4) For the meaning of “corresponding creditor relationship” in cases where persons indirectly stand in the position of creditor, see section 379(2).

(5) References in this Chapter to “the actual accrual period” are references to the accounting period in which the interest would be treated as accruing apart from subsection (1).

Connection between debtor and person standing in position of creditor

374

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loans to close companies by participators etc

375

(1) The case to which this section applies is where—

(a) there is a time in the actual accrual period when the close company conditions are met, and

(b) neither the CIS-based close company conditions nor the CIS limited partnership conditions are met

and, where subsection (4A) applies, the non-qualifying territory condition is met.

(2) The close company conditions are that—

(a) the company which has the debtor relationship (“D”) is a close company, and

(b) a person (“C”) standing in the position of creditor as respects the loan relationship is—

(i) a participator in D,

(ii) the associate of a person who is participator in D,

(iii) a company of which a participator in D has control,

(iv) a company in which a participator in D has a major interest,

(v) a person who controls a company which is a participator in D,

(vi) the associate of a person within sub-paragraph (v), or

(vii) a company controlled by a person within sub-paragraph (v).

(3) The CIS-based close company conditions are that—

(a) D is a CIS-based close company at all times when the close company conditions are met,

(b) C is not resident for tax purposes in a non-qualifying territory at any such time, and

(4) The CIS limited partnership conditions are that—

(a) the debt is one which is owed to, or to persons acting for, a CIS limited partnership,

(b) no member of that partnership is resident for tax purposes in a non-qualifying territory at any time in the actual accrual period,

(c) D has received written notice from the partnership containing information from which it appears that the condition in paragraph (b) is met, and

(d) D is a small or medium-sized enterprise for the actual accrual period.

(4A) This subsection applies if C is a company; and the non-qualifying territory condition is that C is—

(a) resident for tax purposes in a non-qualifying territory at any time in the actual accrual period, or

(b) effectively managed in a non-taxing non-qualifying territory at any such time.

(5) Section 376 applies for the interpretation of this section.

Interpretation of section 375

376

(1) For the purposes of section 375 and this section, Chapter 2 of Part 10 of CTA 2010 (meaning of “close company”) applies with the omission of section 442(a) (exclusion of non-resident companies).

(2) A person who is a participator in a company which controls another company is treated for the purposes of section 375 and this section as being a participator in that other company also.

(3) Subject to that, in section 375 and this section “participator”, in relation to a company, means a person who is a participator in the company within the meaning given by section 454 of CTA 2010, but not a person who is such a participator just because of being a loan creditor of the company.

(4) Section 472 (meaning of “control”) applies for the purposes of section 375 and this section.

(5) In section 375—

“CIS-based close company” means a company which would not be a close company apart from the rights and powers of one or more partners in a CIS limited partnership being attributed to another of the partners under section 451(4) to (6) of CTA 2010 because of section 448(1)(a) of that Act,

“CIS limited partnership” means a limited partnership—which is a collective investment scheme, orwhich would be a collective investment scheme if it were not a body corporate,

“non-qualifying territory” has the meaning given by section 173 of TIOPA 2010,

“resident for tax purposes” means liable, under the law of the non-qualifying territory, to tax there by reason of domicile, residence or place of management, and

“small or medium-sized enterprise” has the meaning given by section 172 of TIOPA 2010.

(6) For the purposes of section 375, a non-qualifying territory is “non-taxing” if companies are not under its law liable to tax by reason of domicile, residence or place of management.

Party to loan relationship having major interest in other party

377

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loans by trustees of occupational pension schemes

378

(1) The case to which this section applies is where—

(a) the loan is one made by trustees of an occupational pension scheme, and

(b) condition A, B or C is met.

(2) Condition A is that there is a time in the actual accrual period when the company which has the debtor relationship (“D”) is the employer of employees to whom the scheme relates.

(3) Condition B is that there is a connection between D and such an employer for the actual accrual period.

(4) Condition C is that a company is such an employer and there is a time in the actual accrual period when—

(a) D has a major interest in that company, or

(b) that company has a major interest in D.

(5) In this section “occupational pension scheme” has the meaning given in section 150(5) of FA 2004.

(6) Section 466 (companies connected for an accounting period) applies for the purposes of this section.

Persons indirectly standing in the position of creditor

379

(1) For the purposes of this Chapter a person is treated as standing in the position of a creditor as respects a loan relationship if the person indirectly stands in that position by reference to a series of loan relationships or relevant money debts.

(2) If—

(a) a person (“C”) indirectly stands in the position of creditor as respects a loan relationship by reference to such a series of relationships or debts, and

(b) section 373 (late interest treated as not accruing until paid in some cases) applies in relation to the debtor relationship because of subsection (1),

the reference in section 373(3) to the corresponding creditor relationship is a reference to C's creditor relationship.

(3) In subsection (1) “relevant money debt” means a money debt which would be a loan relationship if a company directly stood in the position of creditor or debtor.

Chapter 9 — Partnerships involving companies

Partnerships involving companies

380

(1) This section applies if—

(a) a trade or business is carried on by a firm,

(b) any of the partners in the firm is a company (a “company partner”), and

(2) In calculating the profits and losses of the trade or business for corporation tax purposes under section 1259 (calculation of firm's profits or losses), no credits or debits may be brought into account under this Part—

(a) in relation to the money debt, or

(b) in relation to any loan relationship that would fall to be treated for the purposes of the calculation as arising from the money debt.

(3) Instead, each company partner must bring credits and debits into account under this Part in relation to the debt or relationship for each of its accounting periods in which the conditions in subsection (1) are met.

(4) The following provisions of this Chapter contain special rules about the credits and debits to be brought into account under subsection (3)—

(a) section 381 (determinations of credits and debits by company partners: general),

(b) section 382 (company partners using fair value accounting),

(d) section 384 (treatment of exchange gains and losses), and

(e) section 385 (company partners' shares where firm owns deeply discounted securities).

(5) In those provisions “company partner” has the same meaning as in this section.

Determinations of credits and debits by company partners: general

381

(1) The credits and debits to be brought into account under section 380(3) are to be determined separately for each company partner as follows.

(2) The money debt owed by or to the firm is treated as if—

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Corporation Tax Act 2009

Credits and debits treated as relating to capital expenditure

320

Credits and debits recognised in equity

321

Release of debts: cases where credits not required to be brought into account

322

Meaning of expressions relating to insolvency etc

323

Restriction on debits resulting from revaluation

324

Restriction on credits resulting from reversal of disallowed debits

325

Writing off government investments

326

Disallowance of imported losses etc

327

Exchange gains and losses

Exchange gains and losses

328

Pre-loan relationship, abortive and pre-trading expenses

Pre-loan relationship and abortive expenses

329

Debits in respect of pre-trading expenditure

330

Company ceasing to be party to loan relationship

Company ceasing to be party to loan relationship

331

Repo, stock lending and other transactions

332

Company moving abroad

Company ceasing to be UK resident

333

Non-UK resident company ceasing to hold loan relationship for UK permanent establishment

334

Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations

Application of this Chapter

Introduction to Chapter

335

Transfers of loans on group transactions

336

Transfers of loans on insurance business transfers

337

Meaning of company replacing another as party to loan relationship

338

Issues of new securities on certain cross-border reorganisations

339

Continuity of treatment: transfer of loan at notional carrying value

Group transfers and transfers of insurance business: transfer at notional carrying value

340

Transferor using fair value accounting

341

Issues of new securities on reorganisations: disposal at notional carrying value

342

Receiving company using fair value accounting

343

Transferee leaving group after replacing transferor as party to loan relationship

Introduction

344

Transferee leaving group otherwise than because of exempt distribution

345

Transferee leaving group because of exempt distribution

346

Disapplication of Chapter where transferor party to avoidance

Disapplication of Chapter where transferor party to avoidance

347

Chapter 5 — Connected companies relationships: introduction and general

Introduction: meaning of “connected companies relationship”

348

Application of amortised cost basis to connected companies relationships

349

Companies beginning to be connected

350

Companies ceasing to be connected

351

Disregard of related transactions

352

Chapter 6 — Connected companies relationships: impairment losses and releases of debts

Introduction

Introduction to Chapter