Finance Act 1996

Late interest U.K.

2 (1) This paragraph applies for the purpose of bringing debits into account for the purposes of this Chapter in respect of a debtor relationship of a company [F1 (“the debtor company”) in a case falling within any of sub-paragraphs (1A) to (1D) below.] U.K.

[F2 (1A) The first case is where there is, for the relevant accounting period, a connection (within the meaning of section 87 of this Act) between the debtor company and a person standing in the position of creditor as respects the loan relationship.

(1B) The second case is where there is a time in the relevant accounting period when the debtor company is a close company F3 ... and a person standing in the position of a creditor as respects the loan relationship is—

(a) a participator in the debtor company [F4 or a person who controls a company which is such a participator],

(b) the associate of a person who is[F5 , or who controls a company which is,] such a participator at that time, F6 ...

[F7 (c) a company controlled by such a participator or by a person who controls a company which is such a participator, or

(d) a company in which such a participator has a major interest.]

[F8 This is subject to sub-paragraph (1E).]

F3 ...

(1C) The third case is where—

(a) a person standing in the position of a creditor as respects the loan relationship is a company (“the creditor company”); and

(b) there is a time in the relevant accounting period when the debtor company has a major interest in the creditor company or the creditor company has a major interest in the debtor company.

(1D) The fourth case is where the loan is one made by trustees of a retirement benefits scheme (as defined in section 611 of the Taxes Act 1988) and—

(a) there is a time in the relevant accounting period when the debtor company is the employer of employees to whom the scheme relates; or

(b) there is for the relevant accounting period a connection, within the meaning of section 87 of this Act, between the debtor company and such an employer; or

(c) a company is such an employer and there is a time in the relevant accounting period when the debtor company has a major interest in that company or that company has a major interest in the debtor company.]

[F9 (1E) A case does not fall within sub-paragraph (1B) above if either of the following exceptions applies.

(1F) The first exception applies where—

(a) the debtor company is a CIS-based close company at all such times as are mentioned in sub-paragraph (1B) above;

(b) the person standing in the position of a creditor as respects the loan relationship is not resident in a non-qualifying territory at any such time; and

(c) the debtor company is a small or medium-sized enterprise for the relevant accounting period.

(1G) The second exception applies where—

(a) the debt is one that is owed to, or to persons acting for, a CIS limited partnership;

(b) no member of that partnership is resident in a non-qualifying territory at any time in the relevant accounting period;

(c) the debtor company has received written notice from the partnership containing information from which it appears that the condition in paragraph (b) above is satisfied; and

(d) the debtor company is a small or medium-sized enterprise for the relevant accounting period.]

(2) If—

(a) interest payable under that relationship is not paid within the period of twelve months following the end of the accounting period in which it would (apart from this paragraph) be treated as accruing, and

(b) credits representing the full amount of the interest are not for any accounting period brought into account for the purposes of this Chapter in respect of the corresponding creditor relationship,

then debits relating to that interest shall be brought into account on the assumption that the interest does not accrue until it is paid.

[F10 (3) References in this paragraph to a person who stands in the position of a creditor as respects a loan relationship include references to a person who indirectly stands in that position by reference to a series of loan relationships or money debts which would be loan relationships if a company directly stood in the position of creditor or debtor.

(4) Where this paragraph applies in relation to a debtor relationship by virtue of sub-paragraph (3) above, the reference to the corresponding creditor relationship in sub-paragraph (2)(b) above is a reference to the creditor relationship of the person who indirectly stands in the position of a creditor as respects the debtor relationship.

(5) For the purposes of this section, section 414 of the Taxes Act 1988 (meaning of “close company” in the Tax Acts) shall have effect with the omission of subsection (1)(a)(exclusion of companies not resident in the United Kingdom).

[F11 (5A) A person who is a participator in a company which controls another company shall be treated for the purposes of this paragraph as also being a participator in that other company.]

(6) In this paragraph—

• “associate” has the meaning given by section 417(3) and (4) of the Taxes Act 1988;

• [F12 “CIS-based close company” means a company that would not be a close company apart from the attribution, under section 416(6) of the Taxes Act 1988 by virtue of section 417(3)(a) of that Act, of the rights and powers of one or more partners in a CIS limited partnership to another of the partners;]

• [F12 “ CIS limited partnership ” means a limited partnership—

  (a)

  which is a collective investment scheme, or

  (b)

  which would be a collective investment scheme if it were not a body corporate;]

• [F12 “ collective investment scheme ” means a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000;]

• “control” has the same meaning as in section 87 of this Act (see section 87A);

• [F13 “non-qualifying territory” has the meaning given by paragraph 5E of Schedule 28AA to the Taxes Act 1988;]

• “participator”, in relation to a F14 ... company, means a person who, by virtue of section 417 of the Taxes Act 1988, is a participator in the company for the purposes of Part 11 of that Act, other than a person who is a participator for those purposes by virtue only of being a loan creditor of the company;

• “the relevant accounting period” means the accounting period mentioned in sub-paragraph (2)(a) above.

• [F13 “resident” has the meaning given by paragraph 5B(6) of Schedule 28AA to the Taxes Act 1988;]

• [F13 “small or medium-sized enterprise” has the meaning given by paragraph 5D of that Schedule.]

(7) Paragraph 20 below (major interests) applies for the purposes of this paragraph.]

Textual Amendments

F1 Words in Sch. 9 para. 2(1) substituted (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. 22(2)

F2 Sch. 9 para. 2(1A)-(1D) 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. 22(3)

F3 Words in Sch. 9 para. 2(1B) repealed (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 2(2)(a), Sch. 11 Pt. 2(9)

F4 Words in Sch. 9 para. 2(1B)(a) inserted (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 2(2)(b)

F5 Words in Sch. 9 para. 2(1B)(b) inserted (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 2(2)(c)

F6 Word in Sch. 9 para. 2(1B) repealed (with effect in accordance with Sch. 11 Pt. 2(9) Note of the amending Act) by Finance (No. 2) Act 2005 (c. 22), Sch. 11 Pt. 2(9)

F7 Sch. 9 para. 2(1B)(c)(d) substituted for Sch. 9 para. 2(1B)(c) (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 2(2)(d)

F8 Words in Sch. 9 para. 2(1B) inserted (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 2(2)(e)

F9 Sch. 9 para. 2(1E)-(1G) inserted (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 2(3)

F10 Sch. 9 para. 2(3)-(7) 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. 22(4)

F11 Sch. 9 para. 2(5A) inserted (with effect in accordance with Sch. 37 para. 2(4) of the amending Act) by Finance Act 2003 (c. 14), Sch. 37 para. 2(2)

F12 Words in Sch. 9 para. 2(6) inserted (with effect in accordance with Sch. 8 para. 2(4) of the amending Act) by Finance Act 2004 (c. 12), Sch. 8 para. 2(3)

F13 Words in Sch. 9 para. 2(6) inserted (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 2(4)

F14 Word in Sch. 9 para. 2(6) repealed (with effect in accordance with Sch. 37 para. 2(4) of the amending Act) by Finance Act 2003 (c. 14), Sch. 37 para. 2(3), Sch. 43 Pt. 3(13)