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HMRC internal manual

Corporate Finance Manual

Debt cap: the available amount: alternative finance arrangements

Debt cap and alternative finance arrangements

Alternative finance arrangements are arrangements that do not involve the payment or receipt of interest. The transactions that are within the alternative finance arrangement legislation are detailed in CTA09/PT6/CH6 and guidance can be found at CFM44000.

While such arrangements will be structured differently to conventional finance arrangements, the amounts payable as alternative finance returns are, economically, finance costs of borrowing. Examples of arrangements within the alternative finance legislation are:

  • purchase and resale
  • diminishing shared ownership
  • profit share agency
  • investment bonds.

Such arrangements may, for the company standing in the position of the ‘debtor’, be required to be disclosed as financial liabilities under International Accounting Standard 32: Financial Instruments.

While alternative finance arrangements do not in law create a debt, and amounts payable under such arrangements are not interest, HMRC regards ‘borrowing’ in TIOPA10/S332 as having a broad meaning. Where consolidated accounts disclose an alternative finance arrangement as a financial liability, and amounts payable under the arrangement as financing expenses, HMRC will accept alternative finance return payable (and any associated ancillary costs) as coming within section 332 and therefore forming part of the available amount.