»Ê¹ÚÌåÓýapp

DDS and close companies: effect of CTA09/S409: apportionment examples

Example 1

Aldrow Ltd, a close company, issues loan notes with a face value of £12,000 to Mr Aldrow. »Ê¹ÚÌåÓýapp issue price is £10,000 and the notes will redeem in 5 yearsâ€� time. Mr Aldrow is the majority shareholder in Aldrow Ltd. He sells the loan notes half way through Year 3 to an unconnected party, Mrs Kuzuou.

• Aldrow Ltd is a close company.
• »Ê¹ÚÌåÓýapp security is a relevant discounted security.
• Mr Aldrow is a participator in Aldrow Ltd.
• Mrs Kuzuou is not a participator in Aldrow Ltd. She is a ‘personâ€� and not a company.

»Ê¹ÚÌåÓýapp debits for the discount in the accounts of Aldrow Ltd in Years 1 and 2 will be excluded in the computation. »Ê¹ÚÌåÓýappse debits will be brought into account in the AP in which the notes redeem. »Ê¹ÚÌåÓýapp debits in the accounts of Aldrow Ltd for Year 3 will be time apportioned so that half are excluded in the computation. »Ê¹ÚÌåÓýappse excluded debits will be brought into account in the accounting period in which the notes redeem.

Example 2

Midford Ltd, a close company, issues loan notes with a face value of £12,000 to Bilkot Ltd, its UK parent company. Bilkot Ltd owns 99% of the shares in Midford Ltd. »Ê¹ÚÌåÓýapp issue price is £10,000 and the notes will redeem in 5 yearsâ€� time. Bilkot Ltd sells the loan notes half way through Year 3 to Cardew NV, a non-UK company resident in a ‘non-qualifying terrritoryâ€� (CFM37320) that holds 1% of the shares in Midford Ltd.

• Midford Ltd is a close company.
• »Ê¹ÚÌåÓýapp security is a relevant discounted security.
• Bilkot Ltd is a participator in Midford Ltd.
• Bilkot will be bringing into account the discount for tax purposes under the loan relationships legislation.
• Bilkot Ltd is connected to Midford Ltd
• Cardew NV is a participator in Midford Ltd but is not connected to Midford Ltd or Bilkot Ltd.
• Cardew NV will not be bringing into account the discount in accordance with the loan relationships rules.

»Ê¹ÚÌåÓýapp debits for the discount in the accounts of Midford Ltd in Years 1 and 2 will be allowed in the computation because Bilkot Ltd brings the credits into account under the loan relationships legislation. »Ê¹ÚÌåÓýapp debits in the accounts of Midford Ltd for Year 3 will be time apportioned so that half are excluded in the computation. This is because Cardew NV

• is a participator in Midford Ltd, and
• does not bring the credits into account under the loan relationships legislation.

»Ê¹ÚÌåÓýapp excluded debits will be brought into account in the accounting period in which the notes redeem.