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is this a loan relationship?

if no loan agreement and no interest charged on unconnected loan?

Hi

A company intends to make a loan to a totally unconnected third party friend of the director (to use the money to set up his business). There will be no interest charged. The Memorandum seems to allow that as it states as one of the objects that, "to lend money to customers, associates and others whether incorporated or not and to guaranteed the obsevacne and performance or obligations and contracts by customers and others". There will be no loan note or other evidence of the debt. Is this classed as a non-trading loan relationship? thanks. 

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21st Nov 2017 10:38

Will the company be a party to the loan relationship in the course of activities that are an integral part of its trade? Is the company a bank? Where's all the information about what it is that the company actually does?

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21st Nov 2017 11:08

Seems some have had a bad start to the day?
If read carefully, have given all relevant information for one to decide, if they want to be helpful. I should be grateful if you would rather keep away from my postings in the future (not that any of your answers have been of any significance before anyway). being rude and arrogant and having this know-it-all attitude does not work fort me and it seems that not only one who you have been rude to in here.

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By Ruddles
to forrest gump
21st Nov 2017 11:45

forrest gump wrote:

If read carefully, have given all relevant information for one to decide,

If you read Portia's response more carefully you'll realise that you hadn't provided all relevant information. You might think that you had - but you hadn't.

And here's a tip - if you want people to refrain from commenting on future threads, don't ask them not to comment.

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21st Nov 2017 11:18

You should have left the words "non-trading" out of your OP, to avoid Portia's reply.

Is a friend of the director really a totally unconnected third party?

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to Tax Dragon
21st Nov 2017 11:26

with all respect, a friend is a friend. if it was partner or business associate i would have said so because it makes a difference. this person is always rude to anyone on this site and its not the first time one is complaining. where is the respect gone for other fellow professionals?

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By Ruddles
to forrest gump
21st Nov 2017 11:48

[Deleted - daft question]

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to forrest gump
21st Nov 2017 12:06

You could (and should) have left "non-trading" out of your OP (your question was, incredibly, whether the loan created a loan relationship; not (as Portia read it... possibly giving you more credit than you realise) whether that loan relationship was a trading or non-trading one).

Portia could equally (and perhaps should equally) have left "all" and "fulking" out of the reply. But credit where credit is due.

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to Tax Dragon
21st Nov 2017 11:53

Is the *actual* question something different from the one asked then?

Are we to assume that the debt won't be repaid so that the resultant debit will not be tax deductible under the unallowable purpose rules?

What is the fulking question? Does the OP even know what day of the week it is?

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to Portia Nina Levin
21st Nov 2017 12:08

I have given my view/interpretation re (1) and (3) above. No idea re (2) and (4), sorry.

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By ms998
21st Nov 2017 11:25

Why do you need to know? Is it for when the debt goes bad (which it no doubt will)?

What you trying to achieve?

What research you done on this? You got any thoughts or are we doing your research for you?

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to ms998
21st Nov 2017 11:30

all i trying to do is find out what the accounts and tax treatment is since seems that the memorandum allows it. nobody asked you to do my work and i have already researched it before i asked for a fellow accountant opinion. if you dont know the answer dont reply and i wouldn't expect you to work for me here. its only for those who have answer because this came across them before and i would appreciate their help and politeness rather than their insults.

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By ms998
to forrest gump
21st Nov 2017 11:39

Loan Relationship status has nothing to do with accounting. Loan relationship status is a tax concept not accounting.

There is no interest received or impairment in the account so nothing goes through the accounts. Tax follows accounts so no adjustments.

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By DJKL
to forrest gump
21st Nov 2017 13:06

So in answer, re accounts initial entry (unless paid in cash in which case modify):

Dr Loan
Cr Bank

After that further accounting entries-depends
Tax treatment-depends

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By rhino83
21st Nov 2017 11:49

PNL can be somewhat blunt at times but if it offends you just skip over her (I'm assume PNL is a she) responses.

I for one find it quite a turn on when i feel her wrath, this is often then followed by a cold shower.

Back to the question in point. Assuming you are using FRS 102 you will have to discount the loan at the current market rate and if needed impair the loan if it becomes bad.

With regards to the tax, what PNL was getting at, just in a flirtatious way, is it depends on what the business does.

If the normal activities are that of making loans then this loan is part the trading activities. If not then it is a NTLR.

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to rhino83
21st Nov 2017 12:03

thanks for that. i think you have helped me enough. i can only put this persons attitude in here down to frustration?

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By rhino83
to forrest gump
21st Nov 2017 12:17

Well if its sexual frustration she should give me a call. I should be able to help out there.

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to rhino83
21st Nov 2017 13:25

You might be severely disappointed, I'm afraid.

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By rhino83
to Portia Nina Levin
21st Nov 2017 14:32

au contraire, if my wife's opinion is anything to go by it is you who would be severely disappointed.

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to rhino83
21st Nov 2017 14:44

rhino83 wrote:

I for one find it quite a turn on when i feel her wrath, this is often then followed by a cold shower.

PNL is a him. Don't you feel a bit silly now?

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to andy.partridge
21st Nov 2017 14:47

Do be fair Andy. Rhino's are known for being short-sighted.

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to Portia Nina Levin
21st Nov 2017 15:01

Soon be extinct.

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By rhino83
to andy.partridge
21st Nov 2017 14:55

I'll be honest with you Andy, I'm really not that fussy.

As a modern open minded person I'll go either way.

I also though PNL was Steve Kesby's cross dressing alter ego.

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to rhino83
21st Nov 2017 15:00

rhino83 wrote:

I'll be honest with you Andy, I'm really not that fussy.

Your wife must feel immensely flattered by your lack of fuss and modern open-mindedness.

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21st Nov 2017 12:04

nobody is asking you to assume anything. if you can answer what has been asked, answer if not say nothing.

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By ms998
to forrest gump
21st Nov 2017 12:09

Is this classed as a non-trading loan relationship?

Maybe, it depends.

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By Ruddles
to forrest gump
21st Nov 2017 12:22

forrest gump wrote:
if you can answer what has been asked, answer if not say nothing.

"Is this classed as a non-trading loan relationship?"

Yes
No
Maybe

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to forrest gump
21st Nov 2017 12:25

forrest gump wrote:

nobody is asking you to assume anything. if you can answer what has been asked, answer if not say nothing.

If we all did that you'd have no responses since the question, as originally posed, is unanswerable.

Is this a non-trading loan relationship?

The answer depends on the company's trading activities which are not the same as what you've lifted from the articles. The fact that you've still received the answer you needed despite not asking the question you needed answered is something you should be grateful rather than huffy about.

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to Duggimon
21st Nov 2017 12:29

well don't answer at all then if you think not adequate information or ask for more information instead of being rude and insulting. i think this is fair and clear.

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to forrest gump
21st Nov 2017 12:37

forrest gump wrote:

well don't answer at all then if you think not adequate information or ask for more information instead of being rude and insulting. i think this is fair and clear.

More information was asked for but never provided. Had it been provided your question would just have been answered.

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to forrest gump
21st Nov 2017 12:42

forrest gump wrote:

well don't answer at all then if you think not adequate information or ask for more information instead of being rude and insulting. i think this is fair and clear.


Now you sound like you were (pre)determined to take offence. Did I correctly interpret your question, or did Portia?
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to Tax Dragon
21st Nov 2017 12:54

here comes the cavalry? as always

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to forrest gump
21st Nov 2017 13:07

You win. But take with you the thought that, if you won't (attempt to) answer anybody's questions (however worded), you shouldn't be surprised if the (attempts at) answers you get to your own (woefully worded) ones are less than useful.

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to Tax Dragon
21st Nov 2017 14:07

the number of thanks my postings received must say something about that person and its cavalry - maybe that there are some good and genuine people with manners in here after all. nothing else.

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By DJKL
to forrest gump
21st Nov 2017 14:27

The irony of your 16 thanks in total against "that person" having received circa 4,500 (if that person is who I think you are referring) is pretty stark.

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By Ruddles
to forrest gump
21st Nov 2017 14:30

On the other hand, perhaps the number of thanks (1 per comment) simply indicates that you like to slap yourself on the back.

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to Ruddles
21st Nov 2017 14:39

keep dreaming my friend and kidding yourself. it is strange that everyone received thanks after i mentioned that! maybe others have been patting themselves with every post of theirs!

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to forrest gump
21st Nov 2017 14:52

If I'm patting myself it's only out of frustration.

Where's rhino when you need her?

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By Ruddles
to Duggimon
21st Nov 2017 12:30

Duggimon wrote:
the question, as originally posed, is unanswerable.

Not so - all closed questions are answerable. Whether the answer is correct is another matter.
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to Ruddles
21st Nov 2017 12:38

Fair enough, I should have said not usefully answerable instead of unanswerable.

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By Ruddles
to Duggimon
21st Nov 2017 13:20

I think that "maybe" is as useful as the OP deserves.

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21st Nov 2017 14:41

What was the question again?

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to Portia Nina Levin
21st Nov 2017 15:00

I think it was "if a company lends money, does a loan relationship arise?"

In 40-odd replies we've narrowed it down to yes, no, maybe or depends.

We're good, we are.

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to Tax Dragon
22nd Nov 2017 12:12

With answers like that, this forum could soon replace the Office of Tax Simplification

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21st Nov 2017 15:42

Forrest, let me assure you that here on Accounting Web we are not all impolite or - let's not beat about the bush - downright rude.

On behalf of the silent majority (though I admit, I'm not being quite so silent at present, haha), please accept the apologies of this poster and others for some of the quite unacceptable invective you have had to suffer in this thread. It is most unprofessional and is certainly not "big" or "funny".

By the way, I do hope you will also forgive my presumption in addressing you by your first name.

Best wishes,
Red Leader (not my real name)

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By pumnoo
24th Nov 2017 00:09

First of all
A company has a loan relationship if:

it owes or is owed money as respects a money debt, and
that debt arose from a transaction for the lending of money.

CTA 2009, s.302

So having loan notes or not is irrelevant, and without this, loan relationship will be established.

So if the company is not bank then this loan will be NTLR.

Going forward

No interest charge:

Under FRS 102 (though little knowledge of accounting treatment) company should discount the loan on time value for money and unwind it over the period of loan.

annual unwinding will be recognised in other comprehensive income. Such unwindings are not taxable income/expense.

As the loan is interest free so there will be no NTLR cr for company.

If I look remote consequences
[Just a thought]

How about company writes off the loan in future and friend give somehow benefit to director against that loan?

Normally Write-off will be deductible expense but in this case it will be caught under back-to-back loan arrangement to participator.

Therefore such write off will be treated as loan to participator subject to S455 charge.

Otherwise under genuine circumstances:
company is lending money interest free which will be returned at some point in future.

I don't see any tax implication as the company is paying out of its reserves which were generated after paying tax on it.

[please note I have not cosidered other provisions re un-allowable purpose loans etc.]
I hope that helps.

Kind Regards

Regarding insulting responses

I agree with you point of view. I understand that there should be some sarcastic funny elements in responses but must not always be insulting, degrading and disrespectful comments. It discourages other participants.

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