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 Connected Parties and Tax Relief

By Taxwise

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Q. I act for two limited companies that are controlled by the same person. There is a debt owed by one to the other to the sum of £50,000. My client would like to write this off so that the debt is no longer owed, what would the Tax implications of this be?

A. The situation indicates that a loan relationship exists between the two companies. However, the companies are controlled by a common party and are therefore connected.

Under CTA 2009, S/353, if a loan relationship exists between connected parties and is to be written off, there is a restriction on the amount that the company can obtain. As stated in S/354(1)…’no impairment loss or release debit in respect if a company’s creditor relationship is to be brought into account’.

The write-off therefore is tax neutral and there will be no charge in the debtors company and no relief in the creditors company.

Published October 2015