Corporation Tax Act 2009

318 Change of accounting policy following cessation of loan relationship

(1) This section applies if—

(a) the company has ceased to be a party to a loan relationship in an accounting period (“the cessation period”),

(b) section 331 (company ceasing to be party to loan relationship) applied to the cessation, and

(c) there is a difference between the amount outstanding in respect of the loan relationship (see subsection (5))—

(i) at the end of the earlier period, and

(ii) at the beginning of the later period.

(2) In the case of an increase in that amount—

(a) if the company was the creditor under the loan relationship, it must bring into account for the later period a credit equal to the increase for the purposes of this Part, and

(b) if the company was the debtor under the loan relationship, it must bring into account for the later period a debit equal to the increase for the purposes of this Part.

(3) In the case of a decrease in that amount—

(a) if the company was the creditor under the loan relationship, it must bring into account for the later period a debit equal to the decrease for the purposes of this Part, and

(b) if the company was the debtor under the loan relationship, it must bring into account for the later period a credit equal to the decrease for the purposes of this Part.

(4) Subsections (2) and (3) do not apply so far as the credit or debit falls to be brought into account apart from this section.

(5) In this section “the amount outstanding in respect of the loan relationship” means so much of the recognised deferred income or recognised deferred loss from the loan relationship as has not been represented by credits or debits brought into account under this Part in respect of the relationship.

(6) In subsection (5)—

• “recognised deferred income”, in relation to a loan relationship, means the amount recognised in the company’s balance sheet in accordance with generally accepted accounting practice as deferred income in respect of the profits which arose from the relationship or a related transaction in the cessation period, and

• “recognised deferred loss”, in relation to a loan relationship, means the amount so recognised as deferred loss in respect of the losses which so arose.