Commentary on Sections Overview Overview Section 393: Eligibility requirements for interest on loans within section 392
1097.This section sets out conditions relating to circumstances at the time the interest is paid, or during the period of the loan. It is based on section 360(1), (2) and (3) of ICTA.
1098.The first such condition, in subsection (1)(a), is that at the time the interest is paid, the company must not be a close investment-holding company. It says nothing about whether the company is to be a close company. This accords with Statement of Practice 3/78, which explains that section 360(2)(a) of ICTA does not require the company to be close at the time the interest is paid.
1099.The second condition, insubsections (1)(b) and (2), is that during the period of the loan the borrower must not have recovered any capital from the company apart from any amount taken into account under section 406(2) of this Act.
1100.The final condition, in subsections (1)(b), (3) and (4), is in two parts, and it is sufficient that either part is satisfied.
1101.The first part is in subsection (3) and requires the borrower to hold some ordinary shares in the company and to have worked full time for the company during the period from the use of the loan to the payment of the interest.
1102.The second part, in subsection (4), requires the borrower to have a material interest in the company and also that, if the company exists for the purposes of holding investments or other property, none of that property is a residence of that individual, unless (broadly speaking) that individual has worked full time for the company. (For the meaning of “material interest” see section 394 and the commentary on that section.)
1103.The source legislation for the material interest condition does not specify over what period the individual has to have worked full-time for the company. The reference to subsection (3)(b) makes it explicit that regard is to be had to the same period as is referred to in the full-time working condition itself.