Finance Act 2006

Yn ddilys o 19/07/2006

Loan relationships: amounts not fully recognised for accounting purposes U.K.

12 (1) After section 85B of FA 1996 (amounts recognised in determining company's profit or loss) insert— U.K.

“85C Amounts not fully recognised for accounting purposes

(1) This section applies if—

(a) a company is, or is treated as being, a party to a creditor relationship in any period,

(b) an amount is not fully recognised for the period in respect of the creditor relationship,

(c) the company is, or is treated as being, a party to a debtor relationship in the period or has at any time issued share capital which falls to be treated for accounting purposes as a liability (a “relevant accounting liability”) for the period,

(d) an amount is not fully recognised for the period in respect of the debtor relationship or relevant accounting liability, and

(e) the amounts are not fully recognised as mentioned in paragraphs (b) and (d) as a result of the application of generally accepted accounting practice in relation to the creditor relationship and the debtor relationship or relevant accounting liability.

(2) For the purposes of subsection (1) an amount is not fully recognised for the period in respect of any loan relationship or relevant accounting liability of the company if—

(a) no amount in respect of the relationship or liability is recognised in determining its profit or loss for the period, or

(b) an amount in respect of only part of the relationship or liability is recognised in determining its profit or loss for the period.

(3) In determining the credits and debits to be brought into account by the company in respect of the creditor relationship for the period for the purposes of this Chapter, the applicable assumption (see subsection (6)) must be made.

(4) In any case where the condition in subsection (1)(c) is met by reference to a debtor relationship of the company, in determining the credits and debits to be brought into account by the company in respect of that relationship for the period for the purposes of this Chapter, the applicable assumption must be made.

(5) But the amount of any debits to be brought into account by the company for any period for the purposes of this Chapter as a result of subsection (4) must not exceed the amount of any credits to be brought into account by the company for the period as a result of subsection (3).

(6) For the purposes of this section, in relation to any loan relationship, the applicable assumption is the assumption that an amount in respect of the whole of the relationship is recognised in determining the company's profit or loss for the period.

(7) In any case where—

(a) apart from this section any credits or debits are brought into account by the company in respect of any loan relationship for the period for the purposes of this Chapter, and

(b) the relationship is one to which this section applies,

the credits and debits to be so brought into account as a result of this section must be determined on the same basis of accounting on which the credits or debits mentioned in paragraph (a) were determined.

(8) In any other case, the credits and debits to be so brought into account as a result of this section must be determined on the amortised cost basis of accounting.”.

(2) The amendment made by this paragraph has effect in relation to periods of account ending on or after 22nd March 2006.

(3) But, in relation to a period of account beginning before 22nd March 2006, amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of that amendment only if the amounts relate to any time on or after that date.