(1)Section 349 of the Taxes Act 1988 (payment of annual interest etc) is amended as follows.
(2)In subsection (3) (cases where obligation to make interest payments net of tax does not apply), at the end insert “or
(i)in the case of a person who is authorised for the purposes of the Financial Services and Markets Act 2000 and whose business consists wholly or mainly of dealing in financial instruments as principal, to interest paid by that person in the ordinary course of his business.”.
(3)After subsection (4) insert—
“(5)For the purposes of subsection (3)(i) above, a financial instrument includes—
(a)any money,
(b)any shares or securities,
(c)an option, future or contract for differences if, but only if, its underlying subject-matter is (or is primarily) a financial instrument, or financial instruments, and
(d)an instrument the underlying subject-matter of which is (or is primarily) creditworthiness.
(6)For the purposes of subsection (5) above, the “underlying” subject-matter of an instrument the effect of which depends on an index or factor is the matter by reference to which the index or factor is determined.”.
(4)This section applies in relation to the payment of interest on or after 1st October 2002.