Corporation Tax Act 2009 section 351

Companies ceasing to be connected

Section 351 provides the rule that applies when companies cease to be connected and this triggers a change in accounting basis from amortised cost to fair value accounting for a loan relationship between them.

• When two companies cease to be connected, the debtor company's loan relationship may need to switch from an amortised cost basis to a fair value basis.
• Where this change of accounting basis occurs, any resulting credit or debit must be calculated at the point the companies cease to be connected.
• The credit or debit is determined by comparing the fair value of the liability at the date the connection ends with its carrying value under the previous amortised cost basis.
• This ensures that any gain or loss arising purely from the change in accounting method is properly recognised for corporation tax purposes at the time the connected relationship ends.