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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Other tax rules on corporate debt: tax mismatch schemes: overview

Anti-avoidance tax mismatch scheme (TMS) legislation was introduced by FA13 to cancel the tax advantages arising from asymmetries within companies relating to amounts brought into account for the purposes of the loan relationships and derivative contracts rules in CTA09/Part 5 and Part 7. This legislation has been incorporated into Part 21BA of CTA10/S938O to S938V. It was introduced in response to avoidance schemes which aim to avoid the effects of the group mismatch schemes (GMS) legislation (CFM77500 on) by ensuring that the asymmetry does not involve two different companies in the same group. The provisions of the TMS legislation are otherwise broadly similar to those of the GMS legislation.

A tax mismatch which falls within this legislation may arise where a financial instrument (for example, a loan) is between a company and a partnership of which it is a member. The value of corporation tax relief to which the loan gives rise in the company as a member of the partnership may exceed the corporation tax charge (if any) in the company as a lender. As a result transactions that are economically neutral reduce the company’s effective rate of corporation tax.

The mismatch may be the result of differing accounting treatments for the financial instrument, or differing tax treatment in the company and the partnership, or both. The tax advantage may also be one of timing.

The TMS rules are an instance of principles-based legislation and are intended to counter such avoidance generally. They apply where a company is a party to a tax mismatch scheme, where the scheme is either

  • entered into to obtain the chance of securing a ‘relevant tax advantage’, or
  • where the scheme is ‘practically certain’ to secure such an advantage.

The TMS rules eliminate the tax advantage that would otherwise arise from the Tax Mismatch Scheme. They do not create a tax disadvantage.

See CFM77720 for a more detailed overview of the legislation.


The legislation will have effect in relation to arrangements whenever entered into but the only amounts disregarded under CTA10/S938O are scheme losses and profits arising on or after 5 December 2012 (the commencement date).