Annex 1: Minor Changes in the Law Change 56: Loan relationships: references to connections between a company and another person to be rewritten as applying to connections between two companies: sections 348, 361, 468, 469 and 470. Section 87 of FA 1996
Section 87 of FA 1996 provides for the amortised cost basis to be used when bringing into account credits and debits on loan relationships when there is a connection between the creditor company and a person standing in the position of the debtor or between a debtor company and a person standing in the position of a creditor.
Section 87(3) explains what is meant by a connection between a company and another person for the purposes of section 87. The definition is only in terms of the person being a second company. This was not always the case. Section 87(3)(c) originally included the case of a participator of the debtor or creditor company or an associate of the participator until that paragraph was repealed by FA 2002. The definition of “participator” in section 417 of ICTA can include an individual.
The most likely interpretation is therefore that “person” in section 87(1) and (3) of FA 1996 means “company”. Section 87 is rewritten accordingly. The far less likely interpretation is that section 87(3) only provides the definition where the other person is a company and that it is up to the courts to interpret what is meant by connection in section 87(1) where the person is an individual. Section 839 of ICTA, which provides a definition of “connected persons” including connected persons who are not companies, only applies where the section itself is applied (see section 839(1)). It is not applied by section 87 of FA 1996 although it is so applied elsewhere in the loan relationship provisions.