Policy paper

Corporation Tax: extension of interim securitisation regime

Published 19 October 2016

Who is likely to be affected

Securitisation companies (see explanation in background) who are taxed under the interim securitisation regime.

General description of the measure

This measure extends the interim regime so that securitisation companies taxed under that regime can continue to use UK generally accepted accounting practice as it stood at 31 December 2004 as the basis for their tax computations. It will ensure that they continue to be taxed on their actual cash profit, and not their accounting profit. This will be achieved by amending existing regulations.

Policy objective

This measure supports the government’s objectives of improving the competitiveness of the UK as a financial centre and reducing the administrative burden of taxation. It will enable the existing Corporation Tax treatment to continue and so remove an area of uncertainty and ensure these companies are not subject to an inappropriate tax charge.

Background to the measure

Securitisation companies are used as part of certain transactions (securitisations) undertaken by some businesses seeking to raise funds in the capital markets. They’re used to issue debt to the market and to hold assets as security. Commercially, these transactions depend on the quality of the debt issued as determined by ratings agencies. The introduction of International Accounting Standards in 2005 made the accounting results and therefore the taxable profits, of securitisation companies, more volatile. This volatility would make it difficult for rating agencies to rate the debt and could place those capital-raising transactions in jeopardy.

To address this accounting volatility, in 2005 the government introduced specific legislation for securitisation companies known as the ‘interim regime’ to prevent them from being adversely affected, pending the adoption of a permanent securitisation regime in 2006. The interim regime permitted those companies to ignore these accounting changes in computing their corporation tax liabilities. In addition, there are some securitisation companies that don’t fall within either the interim or permanent securitisation regimes. They are taxed under the normal tax rules.

The interim regime has previously been extended twice, but is due to expire by 1 January 2017. However, there is still a relatively small number of companies within the interim regime with securitised assets with a life of 25 years or more. These companies would be adversely impacted by the change of tax treatment when the interim regime expires.

This measure therefore extends the interim regime for those companies who wish to continue to use it.

Detailed proposal

Operative date

The regulations are expected to come into force in December 2016 and the measure will apply to periods of account ending before 1 January 2037. There is no intention to extend the regime beyond 2037.

Current law

The current law is set out in Chapter 8, Part 2 of Finance Act 2005. This defines a ‘securitisation company’ and contains the power to make regulations about the taxation of securitisation companies. It required those companies to use UK generally accepted accounting practice as it stood at 31 December 2004 as the basis for tax computations for periods of account beginning on or after 1 January 2005 and ending before 1 January 2008.

The application of these accounting standards to tax securitisation companies was extended by the Securitisation Companies (Application of Section 83(1) of the Finance Act 2005: Accounting Standards) Regulations 2007 (Statutory Instrument 2007/3338) to periods of account ending before 1 January 2017.

Proposed revisions

A statutory instrument will be introduced later this year to amend the Securitisation Companies (Application of Section 83(1) of the Finance Act 2005: Accounting Standards) Regulations 2007.

As a result the revisions proposed will extend the interim regime to avoid unforeseen tax volatility for securitisation companies following the end of the interim regime.

Summary of impacts

Exchequer impact (£m)

2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
Nil	Nil	Nil	Nil	Nil	Nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any economic impact.

Impact on individuals, households and families

The measure is not expected to impact on individuals and households.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that the measure will have any adverse impact on groups with protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on businesses.

The UK securitisation market is one of the largest and most developed securitisation markets in Europe and an important source of finance for UK businesses. This measure ensures that the corporation tax rules on securitisation vehicles operate clearly thereby minimising the administrative burden on business.

There is no impact on civil society organisations.

Operational impact (£m) (HM Revenue and Customs (HMRC) or other)

It is not anticipated to have any operational impact on HMRC.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact Elizabeth Ward-Penny on Telephone: 03000 585876 or email: elizabeth.ward-penny@hmrc.gsi.gov.uk.

Declaration

Jane Ellison MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.