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CTM56705 - Loan relationships: miscellaneous: for unallowable purposes: general

FA96/SCH9/PARA13 is an anti-avoidance provision. Anti-Avoidance Group (Investigation) has operational responsibility for the domestic operation of this provision.

The provision disallows any debits where in an accounting period a loan relationship has an unallowable purpose. However, it disallows them only to the extent that, on a just and reasonable apportionment, the debits relate to the unallowable purpose.

For an accounting period, a loan relationship has an unallowable purpose if a company is party to it or has entered into a related transaction in relation to it for an unallowable purpose. (FA96/SCH9/PARA13 (2)). The term ‘related transaction’ is defined in FA96/S84. It can therefore potentially apply to any debits, for instance, representing:

  • interest payable or accrued due,
  • accrued discount,
  • a decrease in the value taken into account under an authorised mark to market basis,
  • the creation or increase in a provision in respect of or the writing off of a bad doubtful debt,
  • the release of a debt,
  • a loss on ceasing to be party to a debt, whether by disposal or otherwise.

However, it can only apply to the extent that, on a just and reasonable apportionment, the debit is attributable to the unallowable purpose.