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(1)This section applies if—
(a)there is an issue of funding bonds to a creditor in respect of a liability to pay interest on a debt incurred by a government, public institution, other public authority or body corporate,
(b)by virtue of section 582(1)(a) of ICTA or section 380 of ITTOIA 2005, the issue is treated as if it were a payment of an amount of interest (“the deemed interest”), and
(c)the person by or through whom the bonds are issued is required, under this Part, to deduct a sum representing income tax from the deemed interest.
(2)The person by or through whom the bonds are issued must retain bonds the value of which is, at the time of their issue, equal to income tax on the deemed interest at the savings rate in force for the tax year in which the bonds are issued.
(3)A person who retains bonds in accordance with subsection (2) is treated as complying with the duty to deduct a sum representing income tax from the deemed interest.
(4)The person may tender the bonds retained in satisfaction of any income tax to be collected from the person in respect of the deemed interest under Chapter 15 or 16.
(5)But see section 940 for provision about circumstances where it is impracticable to retain bonds in accordance with subsection (2).
(6)In this Chapter “funding bonds” includes any bonds, stocks, shares, securities or certificates of indebtedness.