On 9 May 2023, HMRC, with very little fanfare, revised its guidance on the unallowable purpose rule in the loan relationships regime and added a significant amount of new commentary. Gerald Montagu, Senior Counsel at Gide Loyrette Nouel, considers what has been added and, perhaps just as importantly, why.
On 9 May 2023, HMRC, with very little fanfare, refreshed its guidance on the application of the unallowable purpose’ rule in the loan relationships regime (found in sections 441–442 of the
Corporation Tax Act 2009) and grafted-on a significant amount of new commentary. This can be found in HMRC’s Corporate Finance Manual at CFM38100 to CFM38200.
The new guidance has clearly been framed with some care and seems to reflect both the importance which HMRC attaches to the unallowable purpose rule, and a recognition of the practical difficulties it poses for both taxpayers and HMRC. As any taxpayer who has been on the receiving end of an unallowable purpose enquiry is likely to be painfully aware, the process is extremely resourceintensive and the new guidance repeatedly acknowledges the very fact-sensitive nature of the test. (This is especially evident from HMRC's ‘practical approach’ to unallowable purpose enquiries, set out at CFM38200).
But why now? ...
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