Finance Act 2010 Explanatory Notes

Background Note

5.Manufactured payments arise where under an arrangement for the transfer of securities one party is required to pay to the other an amount that is representative of real income on those securities.

6.The changes made by subsections (1) and (2) are a response to an assertion that the legislation in respect of repos is defective in its treatment of manufactured payments received by companies in the course of repos involving securities not recognised on the balance sheet. In these cases, it has been suggested that the implicit fiction in section 550(3)(a) of CTA (and for earlier transactions to which CTA does not apply paragraph 4(3)(a) of Schedule 13 to FA 2007) that the seller of the securities receives the real income from those securities is overridden by an alleged requirement in section 550(5)(a) (paragraph 4(4)(a) of Schedule 13 to FA 2007) that the real income must actually be taken into account under GAAP.

7.HM Revenue & Customs does not accept that this is the case, but the amendments put beyond doubt that the GAAP result must be respected for tax even if the accounts take into account manufactured payments instead of real income.

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