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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
, see all updates

Deemed loan relationships: repos: tax rules: creditor and creditor quasi-repos: further examples: no income

Example: creditor repo: no income arises on securities during term of repo

CFM46230 explains why C has a creditor repo in this case.

  • 1/1/09: A (borrower) sells securities to C (lender) for 100.
  • 30/6/09: A repurchases the same or similar securities from C for 103. This includes a finance return of 3 (6 months at 6% per annum).
C’s accounting entries, in accordance with GAAP in addition to the entries at CFM46230:  
1/1/09-30/6/09 (repo ‘interest’ accrual): Dr Financial Asset 3

Cr P&L 3

(the financial asset which has increased to 103 is reduced to nil by receipt of the repurchase price on 30/6/09)    
  Net Profit and Loss result: Cr 3: ‘interest’

Tax Treatment of C

C’s finance return of 3 is treated as interest for loan relationships purposes (CFM46270).

Further points to note

  • This transaction corresponds to the debtor repo example at CFM46430 (where A is a company).
  • C’s tax treatment would be the same if, instead of selling the securities to A, C sold them to B. Such a transaction corresponds to the debtor quasi-repo examples at CFM46460 (where A and B are companies).