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HMRC internal manual

Corporate Finance Manual

Old rules: loan relationships: authorised accounting methods: accruals basis: market discount

Allocating payments: accruing market discount

This guidance applies to periods of account beginning before 1 January 2005

A company acquires a security at a market discount when it buys a security on the market (rather than on issue) for less than its redemption value. A company security with a low rate of interest may be sold for less than its redemption value. The difference between

  • the amount paid for the security on the market (i.e. its cost), and
  • the redemption value

is called the market discount.


The sale of a security at a discount does not affect the borrower. After the sale, the debtor company continues to owe the same amount, payable at the same time but to a different lender. The fact that the new lender paid less for the security than the old lender is of no concern to the borrower when drawing up its accounts.


The creditor will accrue the market discount on an economic accruals basis in the same way as it would accrue an issue discount.