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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Deemed loan relationships: repos: tax rules: deduction of tax

Repos: manufactured payments: requirement to deduct tax (ITA07/S925A-S925B)

ITA07/S925A-S925B activate the deduction of tax requirements for manufactured payments made by companies in creditor repos and received by companies in debtor repos. CFM74300 has more on manufactured payments.

Where a ‘lender’ company has a creditor repo and any income arises on the securities that are initially sold, the lender is treated for the purpose of the tax deduction rules for manufactured payments in ITA07/PT15/CH9 (the successor provision to the tax deduction rules for manufactured payments in CTA10/Part 17) as paying to the borrower a manufactured payment representative of that income, on the same date that the income is payable.

Where a ‘borrower’ company has a debtor repo and any income arises on the securities that are initially sold, the borrower is treated for the purpose of the reverse charge rules in Chapter 9 of Part 15 of ITA07 as receiving from the lender a manufactured payment representative of that income, on the same date on which the income is payable. The reverse charge rules in Chapter 9 of Part 15 of ITA are defined as

  • Regulations under ITA07/S918(4) (reverse charge in respect of manufactured UK REITs dividends);
  • ITA07/S920 (reverse charge in respect of foreign payers of manufactured interest); and
  • ITA07/S923 (reverse charge in respect of foreign payers of manufactured overseas dividends).

The effect of ITA07/S925A-S925B is to treat all manufactured payments as deemed payments, to which the deduction of tax requirement is applied. Therefore any real manufactured payments are ignored for the purposes of the tax deduction rules (ITA07/S925C).

The existing regulations relating to the deduction of tax from manufactured payments remain in force (such as SI 1993/2004, which concerns both the main deduction requirement and the reverse charge). See ITA07/S585.

Deemed manufactured payments: other points

  • ITA07/S925A-S925B replace ICTA88/S737A for payments that are deemed to be made under arrangements coming into force on or after 1 October 2007 (see CFM74300).
  • Section 737A treated a deemed manufactured payment as having been made when the repurchase price for the securities became due (see CFM74300). ITA07/S925A-S925B treat the payment as having been made on the same date on which the real income is payable.
  • See CFM74300 regarding changes for taxpayers within the charge to income tax for repos entered into on or after 1 October 2007.