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No relief: example

BH Ltd lends GF Ltd £30,000 for 3 years, at 5% interest each year. BH Ltd owns 100% of the ordinary shares of GF Ltd, so the companies are connected under CTA09/S348.

In Year 1, BH Ltd receives the interest due of £1,500. At the end of Year 2, GF Ltd’s trading position has deteriorated and it is unable to pay the interest due for Year 2. »Ê¹ÚÌåÓýappre are also serious doubts that it will be able to repay the loan. BH Ltd therefore regards the interest due as bad for Year 2 and formally releases half of the loan.

Year 1

• BH Ltd accounts - Credit £1,500
• BH Ltd tax - Credit £1,500
• GF Ltd accounts - Debit - £1,500
• GF Ltd tax £1,500

Year 2

• BH Ltd accounts - Debit £15,000 (loan released)
• BH Ltd tax:
  • Credit - £1,500
  • Debit - nil
• GF Ltd accounts:
  • Debit - £1,500
  • Credit - £15,000
• GF Ltd tax:
  • Debit - £1,500
  • Credit - nil

CTA09/S354 prevents BH Ltd from bringing in any debit in respect of the impairment loss, but CTA09/S358 excludes any credits being brought in by the debtor company.