CFM17504 – Repos: FA 2007 rules for companies: main features

This guidance describes the corporation tax treatment of sale and repurchase arrangements (“repos”) where the initial sale of securities takes place on or after 1 October 2007

The main features of the rules include:

The explicit statement that a repo arrangement is to be treated as a secured loan for corporation tax (CT) purposes.
The provision for the tax treatment of repo transactions to follow their accounting treatment under generally accepted accounting practice (“GAAP,” meaning either UK GAAP or IAS). If accounts have not been drawn up in accordance with GAAP, the rules apply as if they had been.
The definition of four types of repo transactions

Debtor repos and creditor repos: simple (usually two-party) repos from the point of view, respectively, of the cash borrower and cash lender.
Debtor quasi-repos and creditor quasi-repos: more complex repos from the point of view, respectively, of the cash borrower and cash lender. This enables complex structures as well as simple two-party transactions to be comfortably accommodated within the new rules.

The treatment of the whole arrangement as a loan relationship.
The rules make it clear that income arising on the securities during the period of a repo is taxed only in the hands of the cash borrower. The corollary of this is that relief for manufactured payments made by the cash lender is not available except in extremely restricted circumstances.
The continuing requirement to deduct tax from certain manufactured payments.
Transfers of securities into and out of repos continue to be disregarded for the purposes of the Taxation of Chargeable Gains Act 1992 (TCGA), i.e. for the purposes of CT on chargeable gains.