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HMRC internal manual

International Manual

HM Revenue & Customs
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DT applications and claims: manufactured payments


Sometimes, stocks and shares of companies are in short supply. This can mean that the price at which the stock can be bought and sold suffers large fluctuations. To overcome this problem regulations exist that allow stock to be borrowed from existing owners and for it to be used to temporarily satisfy new purchasers. Fees are paid to allow this to happen.

These transactions can produce an obvious problem. Two people simultaneously own the same stock and expect interest or dividends to be paid to them. In these circumstances the purchaser ordinarily receives the real payment and the market maker must “manufacture” payments for the person who agreed to lend the stock. The aim being that the person receiving the manufactured payment should be in exactly the same position as they would have been if they received the real payment.

Other circumstances in which someone might be required to manufacture a payment include

  • A contract to buy shares might be on terms that include the right to a dividend (cum-dividend) but the transfer is settled with stock where, under the terms of that separate contract, the seller retains the right to the next dividend or interest payment (ex-dividend).
  • A sale and repurchase transaction (a repo) might also result in a situation where an additional amount that is representative of the original dividend is due to the seller of the stock.

Separate comprehensive Guidance Notes to help people to understand the tax rules for

  • Manufactured Dividends on UK Equities
  • Manufactured Interest on UK Securities
  • Manufactured Payments on Overseas Securities

are published by Business International, Outward Investment Team and are available to download from the HM Revenue & Customs website.