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HMRC internal manual

Corporate Finance Manual

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Deemed loan relationships: manufactured interest: DCC Holdings: FA 2009 changes

DCC Holdings: FA 2009 changes

The High Court in the DCC Holdings case had earlier found (in October 2008) that the company was entitled to a freestanding deduction for the deemed payment of manufactured interest. In response, CTA09/S540(3) and FA96/S97(2) were amended by paragraph 5 Schedule 30 FA 2009 to ensure that the tax treatment of manufactured interest (both real and deemed) accords with its economic effect. Only amounts that are recognised in determining a company’s profit or loss in accordance with GAAP are brought into account as loan relationships debits and credits.

The changes applied to real payments of manufactured interest whenever made, and to payments of manufactured interest deemed to be made on or after 27 January 2009. The Supreme Court judgment in the DCC Holdings case means that for such payments and deemed payments, the 2009 changes restate the existing law that their tax treatment accords with their economic effect. For payments of manufactured interest deemed to be made before 27 January 2009 (which were not covered by the 2009 changes), the DCC judgment upholds HMRC’s view that the law means that their tax treatment accords with their economic effect.

CTA09/S545 means that there is no general relief for manufactured interest under repos entered into on or after 1 October 2007 (CFM46260), and relief for deemed manufactured payments (including manufactured interest) in stock loans is statutorily prohibited under CTA10/S812 (CFM46050).