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Finance Bill

Volume 707: debated on Tuesday 27 January 2009


My right honourable friend the Financial Secretary to the Treasury (Stephen Timms) has made the following Written Ministerial Statement.

Legislation will be introduced in the next Finance Bill to prevent a recent decision of the High Court from affecting the tax treatment of real payments of manufactured interest. The legislation will ensure that tax treatment follows the treatment of the payments in company accounts prepared in accordance with generally accepted accounting practice (GAAP).

The recent High Court case involved the tax treatment of deemed manufactured payments, but the decision cast doubt on the tax treatment of real manufactured payments for both payers and recipients. The decision could result in payers being able to claim additional deductions for tax purposes that bear no relation to their economic position, and recipients being taxable on amounts in excess of their actual income.

Before the High Court decision, the tax treatment of real payments of manufactured interest had never been questioned. To ensure the decision does not have adverse consequences either for the Exchequer or for taxpayers this legislation will apply to past payments relating to open accounting periods as well as to payments made on or after today, and will ensure that existing practice is followed.

The legislation will not apply to deemed manufactured interest—the subject of the High Court case—treated as paid before today. Unlike actual payments, the tax treatment of deemed payments has been in doubt for some time. Accordingly, for deemed payments the legislation will apply only to payments made on or after today.

A copy of the draft legislation together with draft Explanatory Notes and full background material will be published today on HMRC's website.