OT22054 - Interest and Financing

Ring Fence Borrowing & Low/Free Interest Loans to Associates

A company may claim ring fence relief and simultaneously make low interest or interest free loans to an associate. Where the matter is material explanations should be requested but the expectation must be the arrangements are tax driven. In principle they are intended to breach the ring fence by charging non oil production costs against oil production. For pre CTSA periods Section 770 (OT22030) may be relevant. For post CTSA periods where Section 770 is replaced by ICTA 88/Sch 28AA inspectors will consider, in conjunction with, the Assistant Director whether to argue that the interest deduction is to be restricted under the new Schedule 28AA rules.