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HMRC internal manual

Corporate Finance Manual

Loan relationships: special types of security: funding bonds: retention ‘impracticable’

Where retention of the funding bonds is ‘impracticable’

Where deduction of tax by retention of bonds is ‘impracticable’ the issuer or paying agent is

  • relieved of the obligation to withhold bonds and account to HMRC for income tax as described in CFM37440 and
  • required to provide specified information

to enable HMRC to assess the recipients under Case VI Schedule D for the chargeable period in which the bonds were issued. The rules are at ITA07/S940.

The word ‘impracticable’ is not defined and so it takes its ordinary meaning. It means ‘impossible in practice’ and so it will only be very rare occasions where it is impracticable for the bond issuer to comply with these obligations. Each case will depend on it own merits, but the test will not be met if retention is merely inconvenient. Only rarely will retention be ‘impracticable’. Any point of difficulty should be referred to CT&VAT (Financial Products).

The ‘impracticable’ let-out applies only to the initial retention of bonds, and not to their being tendered to HMRC in satisfaction of the tax. If it is practicable to retain bonds but for some reason impracticable to tender them, the issuer is still obliged to retain them and is free to pay the tax in cash, see CFM37420.

In ITA07/S940A the bond issuer or any other person so required does not have to divide a funding bond when requested to do so by HMRC if it impracticable to do so.