Loan relationships (LR)


This is a simple topic for most of the businesses but has been presented by HMRC in a complex way.

Basically it’s about loans.

These rules covers the usual loans and also cases which are `deemed`. Whenever word `deemed` is used it means special cases specifically mentioned in legislation.

Recently I came across and very helpful webinar from BKL Tax (a tax consultancy), link below and I thought I should share it.

Some key points from the webinar:

• If a trade debt is released its taxable income. E.g. A Ltd sold £100 apples to B Ltd and later A Ltd forgave the trade debt for say bad debt. £100 will be taxable income for B Ltd.

• Interest expense deduction is taken on accrual basis not on paid basis. But there are some anti-avoidance rules around these – related parties beware!

• International accounting standard 23 and Loan relationships: Capitalised interest MUST be claimed in year interest arises (on accrual basis). CTA09 S 320

• Loan release not taxable in specific cases CTA09 S 322 :

1) Release is part of corporate insolvency

2) Consideration is inform of ordinary shares (debt re-structure in case lenders taking over a business)

3) Debtor company in insolvency/administration/liquidation etc.

• Pre trading LR rules also exist


Connected parties (CTA09 S466)

If companies are under the control of the same person – waivers among them are generally ignored for tax purposes i.e. for creditor company it will not be a tax deductible expenses and for debtor company it will not be a taxable income.

Webinar also mentions of a case where companies controlled by husband and wife are NOT connected. E.g. A ltd is 100% owned by Mr A and B Ltd is 100% owned by his wife Mrs B. A ltd and B Ltd are not connected. I think HMRC may challenge this.

Speakers also briefly mention Interpretation Act 1978 and its use in interpreting the term “same person”.

I recommend that you are interested please go to the webinar mentioned among above.

Micro entity

Another good thing that have come out of EU.

EU issued a directive no. 2012/6/EU as of 14 March 2012 to be implemented all over EU for micro entities.


UK government to comply with the above directive put in place: The Small Companies (Micro-Entities’ Accounts) Regulations 2013.


Main aim- To reduce administrative burden for small business to boost economy.


What is a micro entity?

If a company meets two of the following three conditions, it is classified as a micro entity:

• Turnover : not more than £632,000

• Balance sheet total : not more than £316,000

• Employees : not more than 10


What its use?

Mainly your accountant’s year end work is reduced thus the fee you pay is reduced.


How do we file annual accounts at Companies house ?

In the same way as you use to file, just select “Micro entity” while filing.


What is the impact for HMRC accounts and tax return?

HMRC accepts these accounts. There is no material impact on your corporation tax.

How to amend Companies house accounts?

Everybody makes mistakes, so just in case you made one while filing accounts with Companies house information given below will be helpful.


Amended accounts can only be filed in paper format by sending them via post to Companies house.


They should have the word “Amended” on the first page, conspicuously declared.


Please note both original and amended accounts will remain at Companies house i.e. anyone like a supplier, lender or HMRC will have access to both set of accounts.


Sometimes you may wish to amend only a part of the accounts, for example in case you missed to add a note to accounts or incorrect information was mentioned in a note. In that case you can only send a note stating clearly what has changed along with a copy of the original accounts. This is a better idea than sending a full set of amended accounts as it will save effort on the part of the future reader to compare the two accounts to find the amendment.


Where to send the documents?


Companies registered in England and Wales have to send their accounts to Cardiff.


Companies House

Crown Way

Cardiff CF14 3UZ


Lastly, Companies house can also send an acknowledgement of receipt of documents, if you enclose a stamped self-addressed envelope and a copy of covering letter.

HMRC online system is not online!

It is common knowledge that HMRC PAYE system can take couple of weeks to update RTI submissions and any payments that you make to them.


It has recently come to our attention that information provided on it may also be incorrect.


Recently, we came across a case where amount shown on HMRC online website differs by around c£40k with HMRC own records. When client called the help-line, they were unable to explain the reason for difference.


We are investigating, watch this space …

When should one register as Self employed with HMRC ?

This question cropped up today during our discussion.


I was of the opinion that “within 3 months” of start of business one should inform HMRC by registering as a self-employed.


I was challenged on this and informed that latest guidance stated that one can register within 6 months after the end of financial year.


I came home and checked guidance is :


“Register as soon as you can after starting your business. At the latest, you should register by 5 October in your business’s second tax year.



If you start working as a sole trader between April 2014 to March 2015, you should register before 5 October 2015.


If you register later than this, you won’t get a penalty as long as you send your Self-Assessment tax return and pay your bill on time.”


I think HMRC means by the bill both Income Tax and both Class 4 and 2 National Insurance contributions.


But as informed by one of the discussion member, he recently registered an individual in Oct 2015 and mentioned that the individual started work in Jan 2015 but was asked to pay Class 2 NI for last 2 months only.


It seems HMRC’s internal computer systems are using the old guidance of 3 months, whereas the guidance to public has changed.