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Q. My company borrowed money from another private company, but the loan has now been written off because the lender company has been dissolved. What are the tax implications of this write-off? 

A. A company will have a trading loan relationship, as a borrower, if it is entered into the loan relationship because of its trade. So, for example, a loan taken out to purchase machinery for a manufacturing trade, or to finance an expansion of its trade, will be a trading loan relationship.
 
Debits and credits arising from a trading loan relationship for an accounting period, are
 
* treated as receipts and expenses of the trade, and
* taken into account in computing profits or losses of the trade for that period.
 
The legislation provides that any debit may be deducted in the computation of trading profits, regardless of whether it relates to capital or income or would otherwise be disallowed by CTA 2009, s 54 (the 'wholly and exclusively' rule).
 
In most cases, if the companies are connected, there will be no tax implications for your company. However, if the companies are not connected, your company will be subject to tax for the amount of the write-off.
 
For further guidance on the loan relationship rules for connected parties, see the HMRC Corporate Finance Manual at CFM35320.
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Added By: Sharon Worger on 03rd Aug 2018 - 16:48
Number of Views: 372
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