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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Deemed loan relationships: disguised interest: credits and debits to be brought into account

Credits and debits to be brought into account

The legislative principle at CTA09/S486B(1) sets out that where there is an arrangement that provides a return economically equivalent to interest, that return is to be brought into account and taxed as though it is a profit from a loan relationship (under CTA09/PT5).

CTA09/486B(4) ensures that the taxable debits and credits that are brought into account must be determined on an amortised cost basis.

In a number of cases, the company receiving the return will not be using an amortised cost basis of accounting. Where that is the case, the amounts that are brought into account will be those that would have been brought into account if an amortised cost basis of accounting was used.

In some cases, the return from such arrangements will not be reflected in the company’s profit or loss account in any particular year. Where that is the case, the accounting treatment would be over-ridden and the return would be recognised as though an amortised cost basis of account had been applied (CTA09/S486B(5)).

This ensures that the application of different accounting methods cannot be used to manipulate the timing of a return. Similarly, the fact that a return is not recognised in the accounts of the company will not allow the return to escape from being brought into account.