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HMRC internal manual

Corporate Finance Manual

Deemed loan relationships: money debts: discounts


Discounts (and premiums) are alternatives to interest in rewarding investors for lending money. Although not specifically mentioned, they come within the loan relationships legislation as ‘profits, gains and losses’ arising from a company’s loan relationships.

Discounts taxed as money debts

CTA09/S480 brings certain types of discounts within the rules on money debts, where:

  • the company is a creditor (and so the money debt is an asset)
  • the money debt is one from which a discount arises.

The rule applies from 16 March 2005, and transitional rules exclude from the provision any discount on a money debt which accrued before 16 March 2005.

CTA09/S480 does not treat the debtor as party to a loan relationship. So there will normally be no loan relationship debit corresponding to the creditor’s credit.

CTA09/S480(5) provides that a particular instance of where a discount arises is where

  • a company disposes of property for a deferred consideration,
  • that deferred consideration is greater than the amount that would have been paid for the property if the price had been paid at the time of disposal and
  • the difference, the excess, represents a return on an investment of money at interest

This rule ensures that where compensation is paid to the vendor for being out of their money in the form of an increased amount of sale price this increase is treated as a discount for the purposes of CTA09/PT6/CH2.

Apart from this specific case, ‘discount’ takes its normal meaning. If, for instance, a bill of exchange were acquired by a company at less than face value then any subsequent profit could be taxed under CTA09/PT6/CH2.

Discounts not within section 480

CTA09/S480 will not apply where profits are brought into account as income under some other provision, for example where

  • the company brings the discount into account as alternative finance return) (CFM43000),
  • the money debt is brought into account as a trading receipt, or
  • the money debt arises from the disposal of property which is a loan relationship or a derivative contract.

This condition is further qualified for certain disposals made on or after 22 March 2006. These are defined in CTA09/S480(3) as disposals where CTA09/S340 or CTA09/S625 apply (rules on the use of fair value accounting in certain cases - see (CFM34000 and CFM53000), (or would apply but for the exceptions in CTA09/S341 and CTA09/S628 respectively) or where the whole of the consideration is brought into account for the purposes of the loan relationships regime or the derivative contracts rules.