Corporation Tax Act 2009 section 352A

Exclusion of credits on reversal of disregarded loss

Section 352A prevents a company from recognising a taxable credit where that credit merely reverses a loss that was previously disallowed as a debit under the connected companies rules.

• Where debits on a loan relationship between connected companies have been reduced under the connected parties rules, any subsequent credit that simply reverses the disallowed portion of the loss must also be excluded from the tax computation.
• This ensures symmetry: if a loss was never allowed as a deduction, the corresponding reversal of that loss should not be taxed as income.
• The exclusion applies only to the extent that the credit represents the reversal of the specific amount that was disregarded — any genuine new income remains taxable.
• Credits arising from exchange gains or losses on the debt are not affected by this rule and continue to be brought into account in the normal way.