Company 1 owned 50/50 husband and wife
Company 2 owned 30/30/20/20 husband, wife, son & daughter.
Company 1 made a loan of £50,000 to company two, which it now wishes to write off.
It appears that for AP's starting from 1/10/02 the companies will no longer be connected as the control test is now found in s.840 ICTA 1988 rather than the wider s.416.
Therefore an allowable debit in Co1 and taxable credit in Co2.
Can someone confirm I am correct?
Thanks.
Daren Peacock
Related resources
Replies (1)
Please login or register to join the discussion.
Somewhat belatedly ..
It seems strange that the companies are not connected for loan relationship purposes, but that seems to be what the legislation says and, as you say, the definition of "connected" & "control" is now entirely contained within the loan relationships legislation. I can't find anything there which says that "person" means anything other than one person. However, the Interpretation Act says that person includes a body of persons but that's a different point. It does also say that the words in the singular shall include the plural, so you could read s87A to read the power of persons by means of shareholdings to secure that the affairs of the company are conducted in accordance with their wishes. As husband and wife control both companies in those terms, s87(3)(b) is fulfilled. The HMRC manual at CFM 5410 onwards is no help as the examples given seem to relate mainly to control by other companies and no mention is made of the situation you describe, which is very common. In writing this I've convinced myself that the companies are connected as a result of the IA but I wouldn't put any money on it! I'm not sure if this helps or hinders. Surely there is someone at HMRC who could answer this as it's quite important and as it hasn't happened yet a COP 10 ruling is not in point.