Corporation Tax Act 2009 section 61

Restriction on bringing into account credits resulting from reversal of debits disallowed in a period of account beginning before 1 January 2005

Section 61 prevents companies from recognising a taxable credit under the loan relationships rules when a debit that was previously disallowed for tax purposes in a period of account beginning before 1 January 2005 is subsequently reversed, unless the company uses fair value accounting.

• If a loan relationship debit was disallowed for tax purposes in a period of account beginning before 1 January 2005, any credit arising from the reversal of that debit cannot be brought into account under Part 5 (the loan relationships rules).
• The disallowance may have arisen either because of the connected parties assumption formerly required by paragraph 5(1) of Schedule 9 to the Finance Act 1996, or because the general deduction exceptions in section 74(1)(j) of the Income and Corporation Taxes Act 1988 did not apply.
• The restriction ensures symmetry: if the original expense was not allowed as a tax deduction, the corresponding reversal of that expense should not create a taxable credit.
• This restriction does not apply where the company uses fair value accounting for its loan relationships, in which case the credit may be brought into account.