In Kwik-Fit Group Limited v HMRC [2021] TC08226, the First Tier Tribunal (FTT) found that loans transferred between group companies following a reorganisation did not maintain their allowable purpose meaning the interest was disallowed.

CTA 2009 details the loan relationship rules and sections 441 and 442 set out where debits are to be disallowed due to an unallowable purpose:

The FTT found:

The FTT held that the main purpose of the new loans was unallowable and all interest was to be disallowed. For the existing loans, the main purpose for the the increase of the interest rate was unallowable and so the difference between the original interest rate and LIBOR + 5% was to be disallowed. The total amount disallowed in each accounting period was to be capped at the amount of NTDs used by Speedy 1 in that period.

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?

Losses: Trading and other losses
When can a company offset its losses? What restrictions are there? How are loss claims made?

External link

Kwik-Fit Group Limited v HMRC [2021] TC08226



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