During the pandemic, the number of capital loss claims due to irrecoverable loans to businesses increased significantly. So claiming relief from this loss seems straightforward enough ...
Before claiming relief, you first have to figure out if a loan is 'irrecoverable' and when that happened!
However, there are some difficult obstacles, for example, relief only applies to qualifying loans. So, what is a qualifying loan? Well, it's a loan used for the borrower's trade, profession or vocation, and it doesn't apply to money-lending trades.
"From 24 January 2019 this relief was extended to loans made to overseas businesses!"
Neither can it be a debt on a security and be made in actual money. Both parties cannot be connected such as spouses, civil partners, children or even companies with the same group. And, the loan must have been made after the 11th of April 1978.
So, before claiming relief, you first have to figure out if a loan is 'irrecoverable' and when that happened. HMRC itself considers a loan irrecoverable if there is no reasonable prospect of recovery of the loan as of the date of the relief claim. They will check by looking at the borrower's balance sheet before granting the relief claim. The borrower does not have to have ceased trading in exceptional cases.
"But that is a matter of opinion!"
And there are plenty of cases where a lender has disputed HMRC's judgement and appealed. They have even disputed a relief claim on the grounds of the borrower's financial prospects have improved and that the lender could now, in fact, recover the loan.
There is no standard form for claiming relief and it would be a great idea to speak to your accountant or tax adviser for the precise entries to be made on a corporation tax or self-assessment tax return. There also isn't a time limit on when irrecoverable loans can be claimed for.
Remember that many conditions must be met and be careful that the loan remains irrecoverable, or HMRC could attempt to claw back the relief.
Until next time ...
HELEN BEAUMONT
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about loans to traders and claiming relief, it may be a great idea to give me a call on 01908 774323 and let's see how I can help you.
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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