Corporation Tax Act 2009 section 323A

Substantial modification: cases where credits not required to be brought into account

Section 323A provides relief from taxable credits when a company in financial distress has its debt substantially modified or replaced, so that the restructuring does not give rise to a corporation tax charge.

• Where a company's debtor relationship is substantially modified or replaced, and there is a material risk that the company would be unable to pay its debts within the next 12 months without the modification, any credit arising from a change in carrying value of the liability need not be brought into account for corporation tax purposes.
• This relief applies only where the modification or replacement is treated for accounting purposes as a substantial modification of the terms of a loan relationship.
• If the company benefits from this relief and does not bring a credit into account, it cannot subsequently bring a debit into account to the extent that a later change in carrying value merely reverses the earlier change that was exempted.
• The provision is designed to help companies in significant financial distress by ensuring that debt restructuring does not create an unexpected corporation tax liability at a time when the company is struggling to meet its obligations.