CTM61740 - Close companies: loans to participators: treating loan as made by another company

ICTA88/S422 (5)

Where ICTA88/S422 applies, a loan made by one company is to be treated as made by another company.

ICTA88/S419 and ITTOIA05/S415+ raise a number of questions that have to be asked of the company which ‘made the loan’. The company which made the loan is the company which:

• actually made the loan or advance, or
• on the incurring or assigning of a debt, is regarded as having made a loan (ICTA88/S419 (2)).

The provisions of ICTA88/S419 (2) are extended to companies that are not close by ICTA88/S422 (6). For example, where a debt is assigned to a non-resident company controlled by a close company, the debt is firstly treated by ICTA88/S419 (2) and ICTA88/S422 (6) as a loan made by the non-resident company. It may then be treated by ICTA88/S422 (1) as a loan made by the close company. In this case, the questions have to be asked with regard to the non-resident company.

The questions to ask are whether:

• the company making the loan did so otherwise than in the ordinary course of a business carried on by it which includes the lending of money,
• the loan or any part of it has been repaid to the company,
• the company has released or written off the whole or part of the debt in respect of the loan.