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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Other tax rules on corporate finance: manufactured payments: payments made on or after 1 January 2014: introduction

Overview of manufactured payments

This guidance applies to manufactured payments made on or after 1 January 2014. For manufactured payments made before 1 January 2014, see CFM74300.

The legislation dealing with manufactured payments, as amended by Finance Act 2013, is found in ITA07/PT11ZA and ITA07/PT15/CH9 for income tax and CTA10/PT17A for corporation tax.

A manufactured payment is an amount payable under arrangements for the transfer of securities which is representative of a dividend or of interest on those securities. It may be referred to as a manufactured dividend, a manufactured overseas dividend or manufactured interest according to the type of payment of which it is representative.

Most manufactured payments will be made by financial traders such as banks and stock exchange members. However, other persons may also make them.

Manufactured payments normally arise under repos (CFM46100) or stock loans (CFM74110) where the transaction crosses an interest or dividend date. For example, where a loan of overseas securities is outstanding over the dividend date, the lender does not receive the real dividend to which it would have been entitled had it not lent the securities. The borrower therefore makes a payment - a manufactured payment - to the lender as compensation for not receiving the real dividend.

Manufactured payments also occur where a dealer sells securities ‘cum div’ (with dividend) but delivers securities that are ‘ex div’ (without dividend). The sum that the dealer pays to the buyer to compensate it for not receiving the real dividend is a manufactured payment. The sales that give rise to such payments are often ‘short’ sales (CFM74110): as the dealer does not own the securities at the time of selling them, it is required to acquire them between the date of the bargain and the delivery date, and may only be able to acquire ‘ex div’ stock.

Where the recipient of a dividend simply passes on the dividend to which it is not entitled, this is not a manufactured payment. For example, a person may make a ‘cum div’ sale out of his existing shareholding (a `long’ position), and receive the dividend merely because the company register has not been updated to reflect the change of ownership. The passing on of this dividend to the purchaser is not dividend manufacture. See CIR v Roberts 13TC277 and CIR v Oakley 9TC582.

The definitions of manufactured payment (ITA07/S614ZB) and manufactured dividend (CTA10/S814B) also include the value of any other benefit (including the release of the whole or part of any liability to an amount) given under arrangements for the transfer of securities which is representative of a dividend or of interest on the securities.