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HMRC internal manual

Oil Taxation Manual

Interest and Financing: Replacement and Rescheduled Borrowing

Where a company reschedules or replaces debt that has qualified under CTA10\S286 it is arguable that the money borrowed has been used to refinance the earlier loan rather than “used to meet expenditure incurred by the company in carrying on oil extraction activities …”

Although there is no specific legislation, where the loan rescheduled or replaced is on broadly similar terms to the original loan and there is no significant increase in the interest payable so that in substance the borrowers position has not changed, HMRC will accept that the interest continues to qualify for a deduction under CTA10\S286.

If the terms of the loan are changed significantly resulting in additional interest becoming payable then HMRC may seek to restrict the interest deductions under CTA10\S286 on the replacement or rescheduled loan to those that would have been allowable for the original loan. Any decision will be based on the facts and the features that may be challenged will include an increased interest rate and extension of the term of the loan.