Modifications etc. (not altering text)
C1Pt. 16 Ch. 2 restricted by Finance Act 2004 (c. 12), s. 196I(5)(6) (as inserted (with effect in accordance with Sch. 13 para. 17 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 15 (with Sch. 13 Pt. 4))
C2Pt. 16 Ch. 2 restricted by Finance Act 2004 (c. 12), s. 196G(2)(3) (as inserted (with effect in accordance with Sch. 13 para. 3 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 1 (with Sch. 13 Pt. 2))
(1)For the purposes of this Chapter an arrangement is a type 1 finance arrangement if conditions A and B are met.
(2)Condition A is that under the arrangement—
(a)a person (“the borrower”) receives money or another asset (“the advance”) from another person (“the lender”),
(b)the borrower or a person connected with the borrower makes a disposal of an asset (“the security”) to or for the benefit of the lender or a person connected with the lender, and
(c)the lender or a person connected with the lender is entitled to payments in respect of the security.
[F1(2A)For the purposes of subsection (2)(c) it does not matter if an entitlement of the lender or a person connected with the lender is subject to any condition.]
(3)Condition B is that in accordance with generally accepted accounting practice—
(a)the borrower's accounts for the period in which the advance is received record a financial liability in respect of it, and
(b)the payments reduce the amount of the financial liability.
(4)If the borrower is a partnership the reference to the borrower's accounts includes a reference to the accounts of any member of the partnership.
(5)For the purposes of this section the borrower and the lender are not connected with one another.
Textual Amendments
F1S. 758(2A) inserted (with effect in accordance with Sch. 13 para. 42 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 38
(1)This section applies if a type 1 finance arrangement would have the relevant effect (ignoring this section).
(2)The arrangement is not to have that effect.
(3)The relevant effect is that—
(a)an amount of income on which the borrower or a person connected with the borrower would otherwise have been charged to corporation tax is not so charged,
(b)an amount which would otherwise have been brought into account in calculating for corporation tax purposes any income of the borrower or of a person connected with the borrower is not so brought into account, or
(c)the borrower or a person connected with the borrower becomes entitled to an income deduction.
(4)But if the borrower is a partnership the relevant effect is that—
(a)an amount of income on which a member of the partnership would otherwise have been charged to corporation tax is not so charged,
(b)an amount which would otherwise have been brought into account in calculating for corporation tax purposes any income of a member of the partnership is not so brought into account, or
(c)a member of the partnership becomes entitled to an income deduction.
(5)For the purposes of this section the borrower and the lender are not connected with one another.
(6)An income deduction is—
(a)a deduction in calculating income for corporation tax purposes, or
(b)a deduction from total profits.
(1)This section applies if—
(a)a type 1 finance arrangement would not have the relevant effect (ignoring section 759(2)),
(b)that arrangement would not have the corresponding income-tax effect (ignoring section 809BZB(2) of ITA 2007), and
(c)the borrower is—
(i)a company within the charge to corporation tax, or
(ii)a partnership at least one member of which is a company within the charge to corporation tax.
(2)The payments mentioned in section 758(2)(c) must be treated for corporation tax purposes as income of the borrower payable in respect of the security.
(3)Subsection (2) applies whether or not the payments are also the income of another person for tax purposes.
(4)Subsections (3) to (6) of section 759 (meaning of relevant effect) apply for the purposes of this section as for those of that.
(5)In subsection (1)(b) “the corresponding income-tax effect” means the relevant effect as defined by section 809BZB(3) to (6) of ITA 2007 (provision for income tax corresponding to section 759(3) to (6)).
(1)This section applies if—
(a)there is a type 1 finance arrangement,
(b)the borrower is a company, and
(c)either—
(i)the arrangement is prevented by section 759 from having the relevant effect in relation to the company, or
(ii)section 760 applies to the company.
(2)For the purposes of Part 5 of CTA 2009 (loan relationships)—
(a)the advance is treated in relation to the company as a money debt owed by it, and
(b)the arrangement is treated in relation to the company as a loan relationship of the company (as a debtor relationship).
(3)Any amount which in accordance with generally accepted accounting practice is recorded in the company's accounts as a finance charge in respect of the advance is treated as interest payable under the loan relationship.
(4)If an amount is treated as interest (“deemed interest”) under subsection (3), to find out when it is paid—
(a)treat the payments mentioned in section 758(2)(c) as consisting of amounts for repaying the advance and amounts (“the interest elements”) in respect of interest on the advance,
(b)treat the interest elements of the payments as paid when the payments are paid, and
(c)treat the deemed interest as paid at the times when the interest elements are treated as paid.
(1)This section applies if—
(a)there is a type 1 finance arrangement,
(b)the borrower is a partnership, and
(c)either—
(i)the arrangement is prevented by section 759 from having the relevant effect in relation to a company that is a member of the partnership, or
(ii)section 760 applies to the partnership (in which event “the company” in subsections (2) and (3) means the company within the charge to corporation tax that is a member of the partnership).
(2)For the purposes of Part 5 of CTA 2009 (loan relationships)—
(a)the advance is treated in relation to the company as a money debt owed by the partnership, and
(b)the arrangement is treated in relation to the company as a loan relationship of the partnership (as a debtor relationship).
(3)Any amount which in accordance with generally accepted accounting practice is recorded in the company's accounts, or the partnership's accounts, as a finance charge in respect of the advance is treated as interest payable under the loan relationship by the partnership.
(4)If an amount is treated as interest (“deemed interest”) under subsection (3), to find out when it is paid—
(a)treat the payments mentioned in section 758(2)(c) as consisting of amounts for repaying the advance and amounts (“the interest elements”) in respect of interest on the advance,
(b)treat the interest elements of the payments as paid when the payments are paid, and
(c)treat the deemed interest as paid at the times when the interest elements are treated as paid.