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HMRC internal manual

Corporate Finance Manual

Other rules on corporate debt: tax mismatch schemes: meaning of scheme

What is a tax mismatch scheme?

CTA10/S938U defines ‘scheme’ for the purposes of the tax mismatch rules as including any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving a single transaction or two or more transactions.

What is a ‘scheme profit or loss’?

CTA10/S938Q defines scheme loss and scheme profit as a loss or profit made by a company in an accounting period in relation to a TMS if the loss or profit:

  • arises from a transaction or series of transactions that form part of the TMS,
  • is, or is included in, an amount that is brought into account as a debit or credit for the purposes of the loan relationship or derivative rules and
  • meets either of the asymmetry conditions in subsection (2) or (5) (CFM77760 - CFM77770).

CTA10/S938Q(4) applies where a loss or profit affects, or may affect, the amount of any relevant tax advantage but not all of the loss or profit affects or may affect it. Where this occurs, only the part of the loss or profit that does or may affect the relevant tax advantage is treated as a scheme loss or profit.


CTA10/S938Q(4) would apply if part of a loan relationship loss arising to a debtor company is referable to a third party transaction, or because the loan gives rise to expenses payable to a third party as well as to amounts referable to the debtor company. In such cases, the part of a loss that is referable to the third party cannot be a scheme loss because it cannot affect the amount of any relevant tax advantage.

Where the scheme period extends beyond the end of an accounting period it may not be clear at the end of that accounting period whether the scheme is one that over its full length will secure a relevant tax advantage, or how much any relevant tax advantage will be. If so, CTA10/S938Q(3) provides that any loss or profit will be treated as meeting the first asymmetry condition if the scheme might secure a relevant tax advantage and the loss or profit would affect its amount.