In WT Banks & Co (Farming) Ltd v HMRC [2021] TC08124, the First Tier Tribunal (FTT) found amounts paid by one company to another with a common shareholder were neither non-trading loan relationship debits when written off, nor loans to the controlling participator of the lender.

  • Mr Banks was the majority shareholder of WT Banks & Co (Farming) Ltd (WTB).
  • Mr Banks and his associate, Mr Smith formed Solar Energy Parks Limited (SEP) each owning 50% of the shares.
  • SEP was to submit planning applications for land owned by WTB.
  • Mr Smith was to bring planning expertise, while Mr Banks was to finance the planning applications through WTB.
  • The planning applications were not successful.
  • SEP was struck off and WTB included a corporate tax deduction for the amounts it said it was owed under the Loan relationship provisions.
  • HMRC raised an enquiry and issued a Closure notice concluding that the payments made by WTB were not an allowable deduction and in fact represented a Loan to a participator.
  • WTB requested a Statutory review and subsequently Appealed to the FTT.

The FTT found that:

  • There was no loan relationship as there was no loan agreement between WTB and SEP.
    • There was no evidence as to the final terms of any agreement between WTB and SEP governing the payments.
    • Evidence showed discrepancies between the understanding of any agreement between Messrs Banks and Smith.
    • There was no evidence of any other remuneration arrangements between the companies.
  • The payments made by WTB were not loans to Mr Banks as:
    • The evidence that the bookkeeper charged unknown expenses to the directors’ loan account was accepted.
    • That posting, prior to understanding what the payments were, was not evidence that the payments were to or on behalf of Mr Banks.
    • While Mr Banks could potentially benefit from the payments made to SEP, the real beneficiary was the landowner, WTB, whose land would have greatly increased in value had any planning permission been obtained.


This case once again highlights the importance of documenting business arrangements.

Had WTB been able to show that there was a formal loan relationship in place which covered the payments, which totalled nearly £500k, a corporate tax deduction should have been available and professional fees saved.

While it may seem a tiresome requirement, even with the best intentions, business relationships can become strained and arrangements challenged by HMRC. Documenting agreements can help to prevent confusion and both substantial legal fees and tax consequences at a later date.

Useful guides on this topic

Loan Relationships
How are loans made to and by a company taxed? What are the rules when loans are written down? What is the difference between a trading and non-trading loan relationship? What are the rules for connected party loans?

Close company loans toolkit (loans to participators)
This guide takes a detailed look at the Corporation Tax treatment when a Close Company makes a loan to a participator (director-shareholder). It also provides links to our guides for individuals on the making of loans to companies.

Directors' loan accounts: Toolkit (Freeview)
At a glance: HM Revenue & Customs (HMRC) provide a Director's loan toolkit for advisers. This is our own version with planning points.

Closure notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights?

Statutory Review (by HMRC)
What is a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? 

How to appeal an HMRC decision
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal, what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External links

WT Banks & Co (Farming) Ltd v HMRC [2021] TC08124


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