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HMRC internal manual

Corporate Finance Manual

Other tax rules on corporate finance: structured finance: CTA10/Part 16 Factoring of income etc

Overview of the legislation

Put simply the object of the structured finance rules is to ensure that the system is neutral as between the two ways of borrowing. The rules therefore provide that the income on the asset is still deemed to arise to the borrower, but to give it relief for the finance charge. This puts the borrower for tax purposes in the same position as if method 1 had been employed. The legislation has two main operative sections. The first deals with relatively simple arrangements, the second with complex variants involving the insertion of partnership structures.

Sections 758 to 762 deal with the ‘simple case’. They give the definition of ‘structured finance arrangements’ as arrangements that involve the transfer of an asset including an income stream from a ‘borrower’ to a ‘lender’, and then set out the tax consequences.

Sections 763 to 769 deal with more complex arrangements involving partnerships and changes in profit sharing ratios.

Section 771 sets out the exceptions from the charge, while section 773 provides a regulation making power and section 774 provides some definitions.