A loan of £500k has been formally novated from subsidiary to holding company to improve subsidiary balance sheet.
Can anyone tell me:
1. the accounts treatment
2. the corporation tax treatment
Thank you
Replies (2)
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Novation
An accountant can answer your direct questions.
A novation is a tripartite agreement where:
Lender releases Subsidiary/ original borrower from liability for the loanParent agrees to be liable for the loan
The agreement should record the amount owing at the date of the novation; and the subsidiary pay interest up to that date.
I assume that from that date the loan appears as a liability on the parent's balance sheet; and parent as borrower sets off interest paid to lender as a deductible revenue expense.