CFM35870 - Loan relationships: connected parties: late interest: participation

CTA09/S375

Connection through participation in a close company

Under S375 there is a connection for the late interest rules where the borrower is a close company, and the lender is either

  • a participator in the debtor company,
  • the associate (CFM35880) of a participator,
  • a company controlled by the participator,
  • a company in which the participator has a major interest (see CFM35920),
  • a person who controls a company which is a participator,
  • the associate of such a person, or
  • a company controlled by such a person.

(These last three bullets apply from 4 March 2005.)

But there is an exemption where either the 바카라 사이트˜CIS-based close company conditions바카라 사이트™ (CFM35890) or the 바카라 사이트˜CIS limited partnership conditions바카라 사이트™ (CFM35900) are met.

Definition of participator

The definition of participator follows that used in CTA10/S454, and is a person (individual or company) who has a share or interest in the capital or income of that company. It includes

  • any person who possesses, or is entitled to acquire, share capital or voting rights in the company
  • any loan creditor of the company (however, a person is not a participator for the purposes of CTA09/S375 if they are only a loan creditor, having no other rights or interest)
  • any person who possesses, or is entitled to acquire the right to shares in company distributions, including premiums payable to loan creditors on redemption
  • any person who possesses, or is entitled to acquire the right to secure that the company바카라 사이트™s income or assets (present or future) will be applied directly or indirectly for his or her benefit.

For interest accruing on or after 9 April 2003, a person who is a participator in a company which controls another company will be treated as a participator in that other company for the purposes of the late interest rules (CTA09/S376(2)).

Example 1

Kit Gerrard lends £500,000 to PK Ltd, a close company. Kit owns no shares or other rights in the company. Kit is not a participator in PK Ltd under S375 and is not connected.

Example 2

Kit Gerrard lends £500,000 to PJ Ltd, a close company. Kit owns one ordinary share of the 3,000 issued. Kit is a participator in PJ Ltd under S375 and is connected.

Example 3

Kit Gerrard lends £500,000 to XY Ltd, a wholly owned subsidiary of another company, PJ Ltd. Kit owns one ordinary share of the 3,000 issued in PJ Ltd. Kit is a participator in XY Ltd (from 9 April 2003) and is connected whether or not PJ Ltd is close.