Corporation Tax Act 2009 section 420

Assumptions where options etc. apply

Section 420 sets out how credits and debits should be calculated for loan relationships accounted for on an amortised cost basis, where a party (or their associate) has the power to influence whether, when, or how much becomes due under the relationship after the end of an accounting period.

• Applies where a party to a loan relationship (or their associate) holds an option or has control over whether, when, or how much becomes payable after the accounting period ends, and the relationship is accounted for on an amortised cost basis.
• When calculating credits and debits for the accounting period, you must assume that the party (or their associate) will exercise their power in the way that is most financially advantageous to them.
• The determination of what is most advantageous is made by reference to the position as at the end of the accounting period in question.
• The effects of taxation must be ignored when deciding what the most advantageous outcome would be.