Corporation Tax Act 2009 section 383

Lending between partners and the partnership

Section 383 establishes when a company partner that lends money to (or borrows money from) its own partnership is treated as connected to the partnership for loan relationship purposes, thereby triggering the connected companies rules.

• Where a loan exists between a company partner and the partnership, three conditions (A, B and C) must all be met in the same accounting period for the connected companies rules to apply.
• Condition A requires the company partner to stand as creditor (if it lent money to the partnership) or as debtor (if it borrowed from the partnership); Condition B requires the company partner — alone or together with connected fellow company partners — to control the partnership; and Condition C requires the company partner or another company partner to be treated as holding the corresponding opposite side of the loan relationship under general partnership allocation rules.
• When all three conditions are satisfied, the lending company partner and each company partner on the other side of the loan are deemed to be connected with each other for that accounting period, so the connected companies loan relationship provisions apply — most notably, debits and credits must be calculated on an amortised cost basis.
• For the control test in Condition B, two company partners are regarded as connected with each other if, at any time in the accounting period, one controls the other or both are under the control of the same person.