CFM5512 - Taxing loan relationships: connection and impairment: Para 6B

Applying Para 6B

This guidance applies only to periods of account beginning before 1 January 2005.

Para 6B(2) works by disapplying Para 6(3) (the provision preventing companies from using the authorised arrangements for bad debt in Para 5) where there is a loan relationship and

• the companies become connected in an accounting period beginning on or after 1 October 2002
• bad debt relief was given under Para 5 in a previous accounting period when the companies were unconnected.

Para 6B(3) achieves this by assuming that the amount payable in respect of the creditor relationship, when the companies become connected, is

• not the full amount payable, but instead is
• equal to the pre-connection value.

This is the value of the debt in the accounts of the creditor company at the end of the accounting period preceding connection.

There is an example at CFM5512a.