CFM17552 - Repos: FA 2007 rules for companies: deduction of tax from manufactured payments
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
Manufactured payments: requirement to deduct tax (Paragraph 13 Schedule 13 FA 2007)
Deduction of tax
Paragraph 13 activates the deduction of tax requirements for
manufactured payments made by companies in creditor repos and
received by companies in debtor repos.
Where a “lender” company has a creditor repo and
any income arises on the securities that are initially sold, the
lender is treated for the purpose of the tax deduction rules for
manufactured payments in Chapter 9 of Part 15 of ITA07 (the
successor provision to the tax deduction rules for manufactured
payments in Schedule 23A ICTA88) as paying to the borrower a
manufactured payment representative of that income, on the same
date that the income is payable.
Where a “borrower” company has a debtor repo and
any income arises on the securities that are initially sold, the
borrower is treated for the purpose of the reverse charge rules in
Chapter 9 of Part 15 of ITA07 as receiving from the lender a
manufactured payment representative of that income, on the same
date on which the income is payable. The reverse charge rules in
Chapter 9 of Part 15 of ITA are defined as
- Regulations under section 918(4) ITA07 (reverse charge in respect of manufactured UK REITs dividends);
- Section 920 ITA07 (reverse charge in respect of foreign payers of manufactured interest); and
- Section 923 ITA07 (reverse charge in respect of foreign payers of manufactured overseas dividends).
The effect of paragraph 13 is to treat all manufactured payments
as deemed payments, to which the deduction of tax requirement is
applied. Therefore any real manufactured payments are ignored for
the purposes of the tax deduction rules.
The existing regulations relating to the deduction of tax
from manufactured payments remain in force (such as SI 1993/2004,
which concerns both the main deduction requirement and the reverse
charge). See section 585 ITA07.
Deemed manufactured payments: other points
- Paragraph 13 replaces section 737A ICTA88 for payments that are deemed to be made under arrangements coming into force on or after 1 October 2007 (see CFM17500).
- Section 737A treated a deemed manufactured payment as having been made when the repurchase price for the securities became due (see CFM17245). Paragraph 13 treats the payment as having been made on the same date on which the real income is payable.
- See CFM17245 regarding changes for taxpayers within the charge to income tax for repos entered into on or after 1 October 2007.
