Stratos provides specialist tax advice to companies, shareholders, accountants and finance teams on corporate loan relationships, debt releases and the tax treatment of company borrowing and lending arrangements.

The corporate loan relationship rules can be relevant whenever a company is party to a money debt arising from the lending or borrowing of money. This can include formal loan agreements, intercompany loans, shareholder loans, director loans, group funding arrangements and debt that is later impaired, released or written off.

When loan relationship tax advice may be needed

• A company is lending money to another group company, associated company, shareholder, director or individual.
• A company is borrowing from a connected company, director, shareholder or group entity.
• Interest is being charged, accrued, waived, impaired or written off.
• Historic intercompany balances need to be cleared before a sale, demerger or liquidation is implemented.
• A debt owed to or by the company is being released, compromised or written off.
• The tax treatment depends on whether the parties are connected, associated or have become connected during the life of the loan.

Why debt write-offs should not be treated as routine

A debt write-off can look straightforward from an accounting perspective, but the tax position is not always simple. Depending on the facts, a write-off may create a taxable credit, a non-deductible debit, interest deductibility issues, transfer pricing considerations or unexpected results in a wider transaction.

The risk is that a balance is released for commercial or accounting reasons before the tax consequences have been reviewed. This can leave directors, shareholders and advisers dealing with avoidable tax adjustments after the event.

Common scenarios

• Intercompany debt within a group.
• Debt releases before a company sale or shareholder exit.
• Group simplification projects.
• Director, shareholder or participator balances.
• Solvent liquidations, company closures and restructuring projects.
• Historic loans where documentation, interest treatment or accounting entries are unclear.

How can Stratos help you?

Stratos can review the loan structure, documentation and accounting position before decisions are finalised. We help identify whether the loan relationship rules apply, whether the parties are connected or associated, and what the tax consequences are of a release, impairment or write-off.

We can help by:

• Reviewing the loan structure, documentation and accounting treatment.
• Analysing connected-party and associated-company issues.
• Advising on interest recognition and deductibility.
• Reviewing debt releases, impairments and write-offs.
• Modelling corporation tax consequences before implementation.
• Supporting accountants with technical analysis for tax computations.
• Advising on loan balances as part of sales, demergers, exits and restructures.

Get corporate debt tax advice before the write-off is completed

If your company is considering setting up, altering, releasing or writing off corporate debt, take advice before the accounting or legal steps are completed.

Contact Stratos to discuss the loan relationship tax implications and the most practical next steps.