Part 13Tax avoidance
C2C1F2Chapter 5BFinance arrangements
Pt. 13 Ch. 5B restricted by 2004 s. 12 s. 196I(5)(6) (as inserted 17.7.2012 (with effect in accordance with Sch. 13 para. 17 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 15 (with Sch. 13 Pt. 4))
Pt. 13 Ch. 5B restricted by 2004 c. 12, s. 196G(2)(3) (as inserted 17.7.2012 (with effect in accordance with Sch. 13 para. 3 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 1 (with Sch. 13 Pt. 2))
Type 1 arrangements
809BZAType 1 finance arrangement defined
1
For the purposes of this Chapter an arrangement is a type 1 finance arrangement if conditions A and B are met.
2
Condition A is that under the arrangement—
a
a person (“the borrower”) receives money or another asset (“the advance”) from another person (“the lender”),
b
the borrower or a person connected with the borrower makes a disposal of an asset (“the security”) to or for the benefit of the lender or a person connected with the lender, and
c
the lender or a person connected with the lender is entitled to payments in respect of the security.
F12A
For the purposes of subsection (2)(c) it does not matter if an entitlement of the lender or a person connected with the lender is subject to any condition.
3
Condition B is that in accordance with generally accepted accounting practice—
a
the borrower's accounts for the period in which the advance is received record a financial liability in respect of it, and
b
the payments reduce the amount of the financial liability.
4
If the borrower is a partnership the reference to the borrower's accounts includes a reference to the accounts of any member of the partnership.
5
For the purposes of this section the borrower and the lender are not connected with one another.
809BZBCertain tax consequences not to have effect
1
This section applies if a type 1 finance arrangement would have the relevant effect (ignoring this section).
2
The arrangement is not to have that effect.
3
The relevant effect is that—
a
an amount of income on which the borrower or a person connected with the borrower would otherwise have been charged to income tax is not so charged,
b
an amount which would otherwise have been brought into account in calculating for income tax purposes any income of the borrower or of a person connected with the borrower is not so brought into account, or
c
the borrower or a person connected with the borrower becomes entitled to an income deduction.
4
But if the borrower is a partnership the relevant effect is that—
a
an amount of income on which a member of the partnership would otherwise have been charged to income tax is not so charged,
b
an amount which would otherwise have been brought into account in calculating for income tax purposes any income of a member of the partnership is not so brought into account, or
c
a member of the partnership becomes entitled to an income deduction.
5
For the purposes of this section the borrower and the lender are not connected with one another.
6
An income deduction is—
a
a deduction in calculating income for income tax purposes, or
b
a deduction from total income.
809BZCPayments treated as borrower's income
1
This section applies if—
a
a type 1 finance arrangement would not have the relevant effect (ignoring section 809BZB(2)),
b
that arrangement would not have the corresponding corporation-tax effect (ignoring section 759(2) of CTA 2010), and
c
the borrower is—
i
within the charge to income tax, or
ii
a partnership at least one member of which is within the charge to income tax.
2
The payments mentioned in section 809BZA(2)(c) must be treated for income tax purposes as income of the borrower payable in respect of the security.
3
Subsection (2) applies whether or not the payments are also the income of another person for tax purposes.
4
Subsections (3) to (6) of section 809BZB (meaning of relevant effect) apply for the purposes of this section as for those of that.
5
In subsection (1)(b) “the corresponding corporation-tax effect” means the relevant effect as defined by section 759(3) to (6) of CTA 2010 (provision for corporation tax corresponding to section 809BZB(3) to (6)).
809BZDDeemed interest if borrower is not a partnership
1
This section applies if—
a
there is a type 1 finance arrangement,
b
the borrower is not a partnership,
c
the arrangement is prevented by section 809BZB from having the relevant effect in relation to the borrower, or section 809BZC applies to the borrower, and
d
in accordance with generally accepted accounting practice the borrower's accounts record an amount as a finance charge in respect of the advance.
2
For income tax purposes the borrower may treat the amount as interest payable on a loan.
3
If an amount is treated as interest (“deemed interest”) under subsection (2), to find out when it is paid—
a
treat the payments mentioned in section 809BZA(2)(c) as consisting of amounts for repaying the advance and amounts (“the interest elements”) in respect of interest on the advance,
b
treat the interest elements of the payments as paid when the payments are paid, and
c
treat the deemed interest as paid at the times when the interest elements are treated as paid.
809BZEDeemed interest if borrower is a partnership
1
This section applies if each of conditions A to C is met.
2
Condition A is that—
a
there is a type 1 finance arrangement, and
b
the borrower is a partnership.
3
Condition B is that—
a
the arrangement is prevented by section 809BZB from having the relevant effect in relation to a person who is a member of the partnership, or
b
section 809BZC applies to the partnership (in which event “the person” in subsections (4) and (5) means the person within the charge to income tax who is a member of the partnership).
4
Condition C is that in accordance with generally accepted accounting practice the person's accounts, or the partnership's accounts, record an amount as a finance charge in respect of the advance.
5
For income tax purposes the person may treat the amount as interest payable by the partnership on a loan.
6
If an amount is treated as interest (“deemed interest”) under subsection (5), to find out when it is paid—
a
treat the payments mentioned in section 809BZA(2)(c) as consisting of amounts for repaying the advance and amounts (“the interest elements”) in respect of interest on the advance,
b
treat the interest elements of the payments as paid when the payments are paid, and
c
treat the deemed interest as paid at the times when the interest elements are treated as paid.
Pt. 13 Ch. 5B inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 5 para. 2 (with Sch. 9 paras. 1-9, 22)