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Controlled and Person CTA2009 s466 2(c)

Clarity sought

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Whilst I expect to find  some clarification within my online textbooks ,as I have left the logins for these at home and this is not an area of tax I have had much exposure to, can anyone clarify control and Person position re the following?

Company  L -Ord voting shares held 50% by F and 50% by D (individuals)

Company L  has loan from Company M  which itself has Ord voting shares held 50% by  same F and 50% by same  D (individuals- there are some prefs in issue held by them and their spouses E and B  being 12.5% re each of F and D and 37.5% re each of the spouses, E and B)

The loan from M to L is significant for L, in fact it is L's only borrowing apart from loans from F and D.

CTA  2009 s466 refers to control by a "Person" not by Persons as follows:


There is a connection between a company (“A”) and another company (“B”) for an accounting period if there is a time in the period when—

(a)A controls B,

(b)B controls A, or

(c)A and B are both controlled by the same person.

My gut feel is they ought to be connected but cannot currently locate definition that confirms this is the case.

I believe I need to determine  control as I believe this is first step re determing tax treatment of a partial debt write off  (L has sold its last asset and does not  have enough funds to fully repay its loans from M,F and D) The required write off between companies L and M  is circa £140,000 so given quantum I want to get this right.



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18th Jun 2019 12:50

Up the wrong tree it is you bark. - Yoda

Whilst it is likely that under the CTA 2010, s 450 definition of control, it seems likely that M controls L, by virtue of being entitled to all of L's assets on a winding up (L being insolvent, with less assets than the amount of the loan to M), that's not relevant.

For loan relationship purposes, the first step in determining the tax treatment of any formal release (or writing off) of the amount owed by M to L, is to establish whether the two companies have a connected companies relationship.

For that you ultimately look at the definition of control in CTA 2009, s 472 (s466, to which you refer, does mention it). And s 472 is a de facto control test. Can person A secure that the company's affairs are conducted in accordance with their wishes. Prima facie, company M is not such a person.

Person, can include persons though (Interpretation Act 1978), but HMRC only accept that inclusion if the two people act together. In the context of two companies owned 50:50 by the same individuals, where one company has lent funds to the other they might accept that they do. It's not guaranteed though.

However, if they are not connected L owes HMRC tax on any loan formally written off, and M gets a deduction. L doesn't have any money to pay such tax though.

If they are connected L doesn't owe any tax and M doesn't get any deduction. HMRC are, therefore, better off if they are connected.

Belt and braces, why not just impair the debt in M, and not claim tax relief, but never formally release the debt in L?

Thanks (1)
to Vile Nortin Naipaan
18th Jun 2019 14:49

Thanks for all that, I have felt here I am wading in treacle ordering my thoughts.

What has happened to date is L has sold the ship it owned, repaid M,F and D in ratio to their loans to it and now sits as an insolvent shell owing remaining balances to M,F and D. The loan originated from M lending funds to L some years ago to substantially reconfigure the ship.

The intention is (or was) to strike off L as it is no longer wanted or needed.There is a moot point if F or D (individuals) can generate CGT losses by dint of irrecoverable parts of their loans upon L winding up, the question appearing to be was L a trading company. (L owned a ship which was static and hired (leased?) to third parties as a bar restaurant, I am not very convinced L was therefore trading albeit its activity was Ship Hire and it did not own the land over which/alongside where the ship was moored)

L also has/had fairly chunky older trading losses b/fwd which would more than cover any debt release it received but I have not even got to the point of considering if these remain post the asset sale or have lapsed.(asset sale late last year)

M can certainly impair the remaining loan (in fact it has to within its own accounts) so maybe that is all that is required, as you suggest. L then gets wound up but with no actual loan release to L there is no loan debit (NTLRD) in M, M having not lent in the course of its trade and L accordingly having no taxable loan release by M.

Your suggestion is probably the prudent one but I suspect I probably ought to do some further reading on whether the b/fwd losses in L could possibly be used if a non connected argument could be reasonably made

Edit-Bloomsbury CT Manual 11.36 appears to believe connection definition extended via CTA2010 sec 1122. (see sub d below)

Bloomsbury states:

A company has a connected companies relationship if, as debtor company in the relationship, it has a connection with the creditor company, or if, as creditor company, it has a connection with the debtor company. A company can be in the connected companies relationship through a direct connection with the respective creditor or debtor company or indirectly through a series of loan relationships or relevant money debts. If there is a connected companies loan relationship at any time during an accounting period, it is treated as being in place for the whole of that accounting period (CTA 2009, s 348).

There is a connection between two companies if one controls the other, or both are under the same control (CTA 2009, s 466(2); for the meaning of ‘control’, see 11.37). Unless specifically provided otherwise (see CTA 2009, ss 467–471, 1316(1)), this definition does not disapply the definition given in CTA 2009, s 1316(1), which refers back to the following definition in CTA 2010, s 1122(2):

‘A company is connected with another company if—

(a) the same person has control of both companies,
(b) a person (“A”) has control of one company and persons connected with A have control of the other company,
(c) A has control of one company and A together with persons connected with A have control of the other company, or
(d) a group of two or more persons has control of both companies and the groups either consist of the same persons or could be so regarded if (in one or more cases) a member of either group were replaced by a person with whom the member is connected.’

Any thoughts or are they correct and irrespective of any possible attempts by me, are L and M connected despite 466 etc?

Thanks (0)
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