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HMRC internal manual

Corporate Finance Manual

Loan relationships: special types of security: funding bonds: repayments


It is possible that the creditor who accepts the funding bond as a payment of interest is a non-taxpayer, for example the creditor may be non-resident and able to make a double taxation treaty claim or the creditor, if an individual, may have insufficient income to pay tax.

In these circumstances the creditor can make a repayment claim for the tax deducted and paid over to HMRC. If a non-resident then the claim will be made to CAR: Residency. Our policy has been that where a repayment claim involves tax deducted and paid to HMRC by funding bond then the creditor is asked if they would be willing to accept satisfaction of the repayment claim by all or part of the funding bond held by HMRC. This is not always possible, for example the creditor may not be willing to accept the funding bond as satisfaction of the repayment claim in which case HMRC would have to make a monetary repayment.

Legislation was introduced in FA2008 to enable HMRC to satisfy such repayment claims using funding bonds where the funding bond was issued on or after 12 March 2008. This legislation formalises the policy and provides that HMRC can request that the issuer divides the funding bonds held by HMRC so that the repayment claim can be satisfied. FA2008 amended S939 ITA07 and inserted a new section - S940A ITA07.