CFM17345 - Manufactured payments: UK securities - treatment of payers of manufactured interest

UK securities - payments of manufactured interest

UK securities means securities issued by the UK government, UK public or local authorities or any UK company or other body resident in the UK, but excluding UK shares. “Securities” includes any loan stock or similar security.

Companies

A manufactured payment in respect of interest on an UK security is treated as interest payable on a loan relationship to which the company is party. Section 97 of FA96 applies to such payments and ensures debits are brought into account in accordance with the loan relationship rules as if the company had paid real interest. The payment will be treated as a trading loan relationship expense if paid for the purposes of a trade carried on by the company and a non- trading loan relationship debit otherwise.

Non-corporates

The payment of manufactured interest will be deductible in accordance with normal Case I rules (now section 5 ITTOIA 2005) if incurred for the purposes of the non-corporate’s trade. Otherwise, ITA07/S579 and S580 provide that the payment is deductible from the net income of the manufacturer, to the extent that equivalent taxable amounts are also brought into account.

A manufactured payment in respect of interest made on or after 31 January 2008 will not be deductible if it is paid, or any part of it is paid, in consequence of or otherwise in connection with avoidance arrangements. This means that S580 and parts of S579 are repealed for manufactured payments made on or after that date.