A recent decision of the First-tier Tribunal provides the first real insight into the Tribunal’s attitude towards the application of the loan relationships unallowable purposes rule in FA 1996 Sch 9 para 13.
The facts in AH Field (Holdings) Ltd v HMRC [2012] UKFTT 104 (TC) are relatively straightforward. The taxpayer company borrowed £2m from Barclays and used the funds to make a dividend payment up its corporate chain. The top holding company in the chain used the dividend received to subscribe for a zero coupon note (the Note) issued by the taxpayer which in turn used the subscription proceeds to repay the external loan. After 363 days the taxpayer entered into a new loan from Barclays allowing it to redeem the Note. This...
