Definition of 'Money Borrowed' under S417

Company A paid expenses on behalf of company B and HMRC are arguing that they are associated as a loan creditor by virtue of S417(7) TA 1988. HMRC contend that although no money changed hands the fact that A paid expenses on behalf of B this constitutes ‘money borrowed’ under the above section.

There are no shareholding issues which give rise to the two companies being associated and there is some normal trading that happens between the companies. The expenses paid were posted to a seperate general ledger account by the book-keeper rather than to the sales / purchase ledger accounts, hence why HMRC picked up on the matter.

PTP Tax Tip No 38 defines ‘money borrowed’ as borrowing cash or the transfer of money and quotes the example of a company paying for stock on behalf of another, it goes on to say that in that example the indebtedness is for stock acquired and not money borrowed. In my client’s case I see the indebtedness as for expenses paid not for money borrowed. HMRC say that our client’s circumstances are ‘entirely different’ from the example quoted in the PTP example as it relates to rent charged but not paid for.

I thought the starting point for interpretating leglistation was the literal approach in that words were given their ordinary, everday meaning and to my mind money borrowed means exactly that i.e. you borrow money from someone and then use it generally for whatever purpose you wish. Whilst paying expenses for someone  gives rise to a debt, is it really a debt money borrowed as required by the Act?

Are my good friends (!) at HMRC correct or should I contest the matter further?

Does anyone know of any cases which might support my argument?

Thanks