In C J Wildbirds Food Ltd v HMRC [2018] TC06556 the First Tier tribunal agreed that a loan which could not be repaid and was written off by the lender was a loan relationship and a deduction was allowed for the impairment debit.

A Loan relationship  is created when a company is a debtor or creditor in respect of a money debt which arose from a transaction of lending money. 

  • A money debt is a debt which falls, or has at any time fallen, or may at the option of the debtor or the creditor fall, to be settled:
    • by the payment of money
    • by the transfer of a right to settlement under a debt which is itself a money debt, or
    • by the issue or transfer of any share in any company.

C J Wildbird Foods Ltd (CJW) made a series of loans totalling over £1.5m to a company operating a birdwatching and ornithology website. At the same time it took a 50% shareholding in the company.

  • The loans bore interest at base plus 2%. CJW was entitled to repayment at any time but covenanted not to demand this without first discussing it with the board of the borrowing company. This was evidenced by a clause in the shareholders agreement.
  • Interest was never actually charged or paid.
  • CJW claimed deductions for non trading loan relationship debits across three accounting periods on the basis that the loan was unlikely to be recoverable “in the short term”.
  • HMRC opened enquiries into their corporation tax returns for the three years in question and later closed them by amending the returns to add back the loan relationship debits.
  • HMRC said that there was no loan relationship; there was no money debt as the amounts did not ”carry the hallmarks of a loan, which are that it is repayable, it carries interest, is an ordinary business transaction” and the amounts were akin to capital contributions.

The FTT  found that the amounts were loan relationships and allowed the appeal:

  • The advances were money debts as they were: 
    • legally repayable, with interest and
    • CJWs failure to require repayment did not change their status as debts nor did the lack of a separate instrument.
  • For a loan relationship to exist there is no requirement for interest to be charged or for the lender to have any degree of certainty that the debt will be repaid.

The judge concluded that CJW’s business judgement in continuing to make the loans may have been “overly optimistic” but that HMRC’s disagreement with that judgement was irrelevant to the underlying nature of the transaction.


Not many appeals on topic come to the tribunal and perhaps following this case some firms might take a little more interest on the rules. We have some really good guides on the topics which summarise the essentials for you.

Our links

Loan relationships

Loan relationships toolkit: is a balance within the rules?

Losses: trading and other losses


C J Wildbirds Food Ltd v HMRC [2018] TC06556



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