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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
, see all updates

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

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

CFM46350 explains why A has a debtor 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 charge of 3 (6 months at 6% per annum).
A’s accounting entries, in accordance with GAAP in addition to the entries at CFM46350:  
1/1/09-30/6/09 (repo ‘interest’ accrual): Dr P&L 3; Cr Financial Liability 3 (the financial liability which has increased to 103 is reduced to nil by the payment of the repurchase price on 30/6/09)
Net Profit and Loss result: Debit 3: ‘interest’

Tax Treatment of A

A’s finance charge of 3 is treated as interest for loan relationships purposes.

Further points to note

  • This transaction corresponds to the creditor repo example at CFM46300 (where C is a company).
  • A’s tax treatment would be the same if, instead of repurchasing the securities from C, A purchased them from another person (‘D’). Such a transaction corresponds to the creditor quasi-repo examples at CFM46330 (where C and D are companies).