Company loan relationships

There has been an anomaly in the application of the 'loan relationship' rules as they apply to connected companies (normally group companies or those under common control). The anomaly has resulted in a creditor receiving no relief for waiving a trade debt which relates to a connected company, whilst the debtor would have been taxable on the release of its obligations. Clearly this left the connected companies overall worse off. Legislation will be introduced to take effect from 1 April 2011 to remove this anomaly and exempt the waiver from tax with regard to the debtor company.

The second proposed change is with regard to the late payment of interest between connected companies. The final decision with regard to changes is still being considered following a consultation period.