Finance Act 2002

Accounting method where parties have a connection U.K.

7 (1) Section 87 is amended as follows.

(2) In subsection (3) (meaning of connection between company and another person) in paragraph (a)(case where one company has had control of the other in an accounting period or in the two years preceding it)—

(a) omit “, or in the two years before the beginning of that period,”; and

(b) at the end of the paragraph, insert “ or ”.

(3) In paragraph (b) of that subsection (case where both companies under control of same person in that period or those two years) omit “, or in those two years,”.

(4) Omit paragraph (c) of that subsection (company was close company and other person was participator or associate of participator in that period or those two years).

(5) In subsection (5) (persons indirectly standing in position of creditor or debtor by reference to a series of loan relationships) after “series of loan relationships” insert “ or money debts which would be loan relationships if a company directly stood in the position of creditor or debtor ”.

(6) After subsection (5) insert—

“(5A) Where a trade, profession or business is carried on by two or more persons in partnership (“the firm”) and the firm stands in the position of a creditor or debtor as respects a money debt, any question—

(a) whether there is for the purposes of this Chapter a connection, within the meaning of this section, between any two companies for an accounting period in the case of a loan relationship, or

(b) to what extent any amount is to be treated under this Chapter in any particular way as a result of there being, or not being, such a connection,

shall be determined as if to the extent of his appropriate share each of the partners separately, instead of the firm, stood in the position of a creditor or, as the case may be, debtor as respects the money debt.

The reference in the words following paragraph (b) above to partners does not include a reference to the general partner of a limited partnership which is a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000.

(5B) For the purposes of subsection (5A) above, a partner’s “appropriate share” is the share that would be apportioned to him if an apportionment were made in the shares in which any profit or loss computed in accordance with subsection (1) of section 114 of the Taxes Act 1988 for the accounting period in question would be apportioned between the partners under subsection (2) of that section.”.

(7) Omit subsections (6) to (8)(meaning of “control”, “participator” and “associate”).