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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Loan relationships: tax avoidance: artificial payments of interest: sole or main benefit

Sole or main benefit

CTA09/S443 prohibits relief in respect of any payment of interest:

  • if a scheme has been effected, or
  • arrangements have been made,

(whether before or after the time when the payment is made) such that the sole or main benefit that might be expected to accrue to that person from the transaction under which the interest is paid was the obtaining of a reduction in tax liability by means of any such relief.

The sole or main benefit test is an objective, rather than a subjective test: the subsection focuses on the result to be expected from the transaction rather than its purpose. (See The Crown Bedding Co Ltd v CIR 34TC107 at pp 115, 118-120, followed in Ackland & Pratten Ltd v CIR 39TC649 at p662, and approved in CIR v Brebner 43TC705 at p718).

Ordinary borrowings involving funds, which are genuinely invested or re-lent, are not affected because the tax relief on the interest paid is incidental to the transaction.

Definition of relief

Relief for the purposes of CTA09/S443 is defined as meaning relief by way of deduction in computing profits or gains, or deduction or set-off against income or total profits. Thus it covers all methods by which relief is obtained for Corporation Tax (or Income Tax) purposes

Look at the group as a whole

Where the relief is claimed by virtue of ICTA88/S403(7) (group relief - CTM80500), the benefit to be considered under CTA09/S443 is to be determined by reference to the claimant and surrendering companies taken together.