DMBM200230 - Payment processing and accounting: payment methods: Funding Bonds and Loan Notes

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What are Funding Bonds and Loan Notes?

This is a type of payment that we have to accept in satisfaction of the tax deducted from interest paid by companies to their creditors.

They can be in the form of Loan Notes, Payments in Kind Notes (PIK Notes), Shares, Bonds, securities or certificates of indebtedness.

They usually arise when a company, public authority or similar body does not have the funds to pay interest due on a loan. The creditor (body to whom the interest is due) may agree to accept ‘Funding Bonds’ instead of cash. S.939 ITA 2007 allows the company to withhold the proportion of the Funding Bond, equivalent to the tax they are required to deduct.

The retained proportion of the Funding Bond can then be used to satisfy the tax liability and is submitted to HMRC with the declaration on form CT61.

These forms of payment are in effect a promise to pay at a later date but by virtue of S582 ICTA 1988, satisfy the tax liability and therefore have to be accepted as ‘payment’ and become non-cash assets of HMRC.

They can apply only to IT-CP declared on form CT61 and for accounting purposes, satisfy all or part of the liability declared.

Processing Forms CT61 and Funding Bonds

The processing of forms CT61 is the responsibility of DMB Banking, Shipley.

If you receive any forms CT61, you should stamp both the form and any documentation with the date of receipt and send immediately to:

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