Chapter 5U.K.Connected companies relationships: introduction and general
348Introduction: meaning of “connected companies relationship”U.K.
(1)This Chapter contains some general rules relating to connected companies relationships.
(2)For the purposes of this Part a debtor relationship of a company is a connected companies relationship if there is a connection between—
(a)the company, and
(b)another company standing in the position of a creditor as respects the debt in question.
(3)For the purposes of subsection (2) a company is treated as standing in the position of a creditor if it indirectly stands in that position by reference to a series of loan relationships or relevant money debts.
(4)For the purposes of this Part a creditor relationship of a company is a connected companies relationship if there is a connection between—
(a)the company, and
(b)another company standing in the position of a debtor as respects the debt in question.
(5)For the purposes of subsection (4) a company is treated as standing in the position of a debtor if it indirectly stands in that position by reference to a series of loan relationships or relevant money debts.
(6)For the purposes of this Part, if a loan relationship is a connected companies relationship at any time in an accounting period, it is treated as being such a relationship for the period.
(7)In this section “relevant money debt” means a money debt which would be a loan relationship if a company directly stood in the position of creditor or debtor.
(8)Section 466 (companies connected for an accounting period) applies for the purposes of this section.
349Application of amortised cost basis to connected companies relationshipsU.K.
(1)This section applies if a loan relationship is a connected companies relationship for an accounting period.
(2)The credits and debits which are to be brought into account for the purposes of this Part in respect of the relationship for the period are determined on an amortised cost basis of accounting.
[F1(2A)Where—
(a)a company has a hedging relationship between a relevant contract (“the hedging instrument”) and the asset or liability representing the loan relationship, and
(b)the loan relationship is dealt with in the company's accounts on the basis of fair value accounting,
it is to be assumed in applying an amortised cost basis of accounting for the purpose of subsection (2) that the hedging instrument has where possible been designated for accounting purposes as a fair value hedge of the loan relationship.]
F2(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F2(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Textual Amendments
F1S. 349(2A) inserted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 28(2)
F2S. 349(3)(4) omitted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 28(3)
Modifications etc. (not altering text)
C1S. 349 disapplied (24.2.2022) by Finance Act 2022 (c. 3), Sch. 2 para. 39(1)
F3350Companies beginning to be connectedU.K.
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Textual Amendments
F3Ss. 350, 351 omitted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 29
F3351Companies ceasing to be connectedU.K.
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Textual Amendments
F3Ss. 350, 351 omitted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 29
352Disregard of related transactionsU.K.
(1)This section applies in an accounting period if—
(a)section 349 applies in respect of a creditor relationship of a company for the period, and
(b)a related transaction takes place in relation to the relationship in the period.
(2)The credits brought into account in respect of the relationship for the period for the purposes of this Part must not be less than they would have been if—
(a)the transaction had not taken place, and
(b)no amounts had accrued after the transaction took place.
(3)The debits brought into account in respect of the loan relationship for the period for the purposes of this Part must not be more than they would have been in that case.
[F4(3A)Subsections (2) and (3) do not affect the credits or debits to be brought into account for the purposes of this Part in respect of changes in the fair value of the asset that are attributable to changes in the corresponding market rate.
(3B)Subsection (3A) is subject to section 354 (exclusion of debits for impaired or released connected companies debts).
(3C)In relation to a debt, “the corresponding market rate” at any time is the lowest rate at which a company of good financial standing might at that time expect to be able to borrow money at arm's length in the currency applicable to the debt, for repayment at the same time as the debt and otherwise on similar terms.]
(4)Nothing in this section affects the credits or debits to be brought into account for the purposes of this Part in respect of exchange gains or losses arising from a debt.
Textual Amendments
F4S. 352(3A)-(3C) inserted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 30
[F5352AExclusion of credits on reversal of disregarded lossU.K.
(1)If as a result of section 352 the debits brought into account by a company in respect of a loan relationship are reduced, no credit is to be brought into account for the purposes of this Part to the extent that it represents the reversal of so much of the loss as was not brought into account as a debit.
(2)Nothing in this section affects the credits to be brought into account for the purposes of this Part in respect of exchange gains or losses resulting from a debt.]
Textual Amendments
F5S. 352A inserted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 31
[F6352BEliminating tax mismatch for loan relationships with qualifying linkU.K.
(1)This section applies if—
(a)section 349 applies in respect of a loan relationship of a company for an accounting period (application of amortised cost basis to connected companies relationships),
(b)the company is a party to another loan relationship (“the external loan relationship”) in respect of which that section does not apply for the period,
(c)the external loan relationship is a debtor relationship dealt with in its accounts on the basis of fair value accounting, and
(d)the external loan relationship has a qualifying link with one or more other loan relationships of the company.
(2)For this purpose the external loan relationship has “a qualifying link” with one or more other loan relationships of the company if—
(a)each of those other loan relationships of the company is a loan relationship in respect of which section 349 applies for the accounting period, and
(b)taking those other loan relationships together, the money received by the company under the external loan relationship is wholly or mainly used to lend money under those other loan relationships.
(3)The credits and debits which are to be brought into account for the purposes of this Part in respect of the external loan relationship for the period are to be determined on an amortised cost basis of accounting.
(4)If a company has a hedging relationship between—
(a)a relevant contract (“the hedging instrument”), and
(b)the liability representing the external loan relationship,
it is to be assumed in applying the amortised cost basis of accounting for the purposes of subsection (3) that the hedging instrument has where possible been designated for accounting purposes as a fair value hedge of that loan relationship.]
Textual Amendments
F6S. 352B inserted (with effect in accordance with Sch. 12 paras. 3, 4 of the amending Act) by Finance Act 2019 (c. 1), Sch. 12 para. 1
Modifications etc. (not altering text)
C2S. 352B: power to amend conferred (with effect in accordance with Sch. 12 paras. 3, 4 of the amending Act) by Finance Act 2019 (c. 1), Sch. 12 para. 5