Debt cap: financial services groups: lending activities
This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.
The definition of lending activities as a qualifying activity
The first qualifying activity is lending activities and activities that are ancillary to lending activities. The term lending activities is defined TIOPA10/S268 and is made up of the following:
- ‘Acceptance of deposits or other repayable funds’ (section 268 (1) (a) ). As well as customer deposits, this also includes the provision of saving products.
- ‘Lending of money, including consumer credit, mortgage credit, factoring (with or without recourse) and financing of commercial transactions (including forfeiting)’ (section 268 (1) (b)). The term ‘lending of money’ is intended to have a wide definition; the subsequent examples are not intended to be exclusive. ‘Forfeiting’ is a method of providing export finance, where the export receivables are generally guaranteed by the importers bank.
- ‘Finance leasing (as lessor)’ (section 268 (1) (c)). This includes finance leases as a finance lease is the provision of a secured loan. Operating leases and hire purchase agreements are not finance leases and so are not qualifying activities. For a long funding lease whether or not it is a finance or operating lease depends upon the accounting treatment of the lease.
- ‘Issuing and administering means of payment’ (section 268 (1) (d)). Examples would include the issue and administering of cheque books, or much more commonly now the issue and administering of debit or credit cards.
- ‘Provision of guarantees or commitments to provide money’ (section 268 (1) (e)).
- ‘Money transmission services’ (section 268 (1) (f)). For purposes of section 268 (1) this will include the exchange of foreign currency.
- ‘Provision of alternative finance arrangements’ (section 268 (1) (g)). The term ‘alternative finance arrangements’ has the same meaning as in CTA09/PT6/CH6 (see CFM44000+ for an explanation of what the term means for tax purposes).
- ‘Other activities carried out in connection with activities falling within any of paragraphs (a) to (g)’ (section 268 (1) (h)) . This is intended to cover activities that are directly related to the activities within (a) to (g). The type of activity will include for example the charging and receipt of an arrangement fee in respect of a loan of money. Section 268 (5) explains that the term ‘activities’ includes buying, holding, managing and selling assets - for example the purchase or sale of a book of loans or mortgages.