Finance Act 1996

[F1 [F2 Impairment losses]: companies becoming connected U.K.

Textual Amendments

F1 Sch. 9 para. 6B and cross-heading inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 26

F2 Words in Sch. 9 para. 6B heading substituted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 24(2)

6B (1) Where— U.K.

(a) paragraph 6 above applies in relation to a creditor relationship of a company (the “creditor company”) in the case of an accounting period, and

(b) another company (the “debtor company”) stands in the position of a debtor as respects the money debt,

[F3 an impairment loss is not excluded by paragraph 6(3) in the following two cases] .

(2) [F4 The first case is where—]

(a) [F5 an impairment loss has been brought into account for the purposes of this Chapter] in respect of the creditor relationship for a previous accounting period for which there was no connection between the creditor company and the debtor company; and

(b) the first accounting period of the creditor company for which there is or was such a connection is an accounting period beginning on or after 1st October 2002.

(3) [F6 An impairment loss may be brought into account] under sub-paragraph (2) above to the extent only that the debits brought into account by the creditor company for the accounting period in respect of the relationship are not more than they would have been if it were assumed that the aggregate of the amounts payable in respect of the creditor relationship were equal to the pre-connection value of the asset representing the creditor relationship.

(4) The “pre-connection value” of the asset representing the creditor relationship is the value of that asset as shown in the accounts of the creditor company at the end of the accounting period immediately preceding the accounting period mentioned in sub-paragraph (2)(b) above.

[F7 (5) The second case is where the following conditions are met.]

(6) The conditions are that—

(a) the creditor company acquired its rights under the relationship by virtue of an arm’s length transaction;

(b) for the accounting period in which it acquired those rights, there was no connection between the creditor company and the person from whom it acquired the asset; and

(c) there had been no such connection between the creditor company and the debtor company at any time in the period which—

(i) begins 4 years before the date on which the company acquired those rights; and

(ii) ends twelve months before that date.

(7) [F8 An impairment loss may be brought into account] under sub-paragraph (5) above to the extent only that the debits brought into account by the creditor company for the accounting period in respect of the relationship are not more than they would have been if—

(a) it were assumed that the aggregate of the amounts payable in respect of the relationship were equal to the price paid by the company to acquire its rights; and

(b) no departure were allowed from the assumption in paragraph (a) above.

(8) For the purposes of this paragraph, there is a connection between a company and another person at any time if at that time—

(a) the other person is a company and one of the companies has control of the other, or

(b) the other person is a company and both companies are under the control of the same person,

and there is a connection between a company and another person for an accounting period if there is a connection (within paragraph (a) or (b) above) between the company and the person at any time in that accounting period.

(9) For the purposes of sub-paragraph (8) above “control” has the meaning given for the purposes of section 87 by section 87A of this Act.]

Textual Amendments

F3 Words in Sch. 9 para. 6B(1) substituted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 24(3)

F4 Words in Sch. 9 para. 6B(2) substituted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 24(4)(a)

F5 Words in Sch. 9 para. 6B(2)(a) substituted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 24(4)(b)

F6 Words in Sch. 9 para. 6B(3) substituted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 24(5)

F7 Sch. 9 para. 6B(5) substituted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 24(6)

F8 Words in Sch. 9 para. 6B(7) substituted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 24(7)