Finance Act 1996

11 (1) Where—

(a) an authorised accruals basis of accounting is applied as respects any continuing loan relationship of a company for the company’s first relevant accounting period,

(b) an asset representing that relationship is a relevant asset or any liability under it is a relevant liability, and

(c) the relationship is not one as respects which, if the company had ceased to be a party to the relationship on 31st March 1996, any amounts would have been brought into account in computing, for an accounting period ending on or after that date, the profits or losses of the company from any trade carried on by it,

that accounting method shall be taken for the purposes of this Chapter to require the asset or liability to be given a notional closing value as at 31st March 1996 in accordance with paragraph 12 below and the following provisions of this paragraph shall apply if there is any difference in the case of that relationship between the amounts mentioned in sub-paragraph (2) below.

(2) Those amounts are—

(a) the amount which would have been brought into account as accruing in the first relevant accounting period of the company, if—

(i) the company had become a party to the loan relationship on 1st April 1996;

(ii) the opening value applicable as at that date for the purposes of an authorised accruals basis of accounting had been the notional closing value as at 31st March 1996; and

(iii) the closing value applicable as at the end of that period for the purposes of such a basis of accounting were the same as the amount given as that closing value when applying such a basis for computing the amount mentioned in paragraph (b) below;

and

(b) the amount which is in fact treated as accruing in that period in accordance with paragraph 4 above.

(3) Where the amounts mentioned in paragraphs (a) and (b) of sub-paragraph (2) above are amounts falling to be brought into account as credits, the difference between them shall be brought into account—

(a) where the amount mentioned in paragraph (a) exceeds the amount mentioned in paragraph (b), as a credit given for the purposes of this Chapter for the accounting period in which the company ceases to be a party to the relationship; and

(b) in any other case, as a debit so given.

(4) Where the amounts mentioned in paragraphs (a) and (b) of sub-paragraph (2) above are amounts falling to be brought into account as debits, the difference between them shall be brought into account—

(a) where the amount mentioned in paragraph (a) exceeds the amount mentioned in paragraph (b), as a debit given for the purposes of this Chapter for the accounting period in which the company ceases to be a party to the relationship; and

(b) in any other case, as a credit so given.

(5) Where the company ceases to be within the charge to corporation tax, it shall be deemed for the purposes of this paragraph to have ceased to be a party to the relationship in question immediately before ceasing to be within that charge.

(6) A credit or debit brought into account under this paragraph shall be brought into account as a non-trading credit or non-trading debit.

(7) In this paragraph—

• “chargeable asset”, in relation to a company, means (subject to sub-paragraph (8) below) any asset held by the company on 31st March 1996 in the case of which one of the following conditions is satisfied, that is to say—

  (a)

  a gain accruing to the company on a disposal of that asset on that date would have fallen to be treated in relation to the company as a chargeable gain; or

  (b)

  a chargeable gain or allowable loss would be deemed to have accrued to the company on any disposal of that asset on that date;

• and

• “relevant asset” means a chargeable asset or a relevant qualifying asset.

(8) An asset is not a chargeable asset for the purposes of this paragraph if (disregarding the provisions of this Chapter) it is an asset any disposal of which on 31st March 1996 would have fallen to be regarded for the purposes of the 1992 Act as a disposal of a qualifying corporate bond.

(9) Expressions used in this paragraph and paragraph 5 above have the same meanings in this paragraph as in that paragraph.