Summer Budget 2015: Additional provisions to modernise taxation of corporate debt and derivatives contracts for companies

Following the consultation announced in the 2013 Budget, a series of changes were proposed to modernise the corporation tax rules on the taxation of corporate debt and derivative contracts. Today’s announcements bring forward the legislative process for part of these proposals. The main details of these changes and draft legislation were published last year.

The main changes introduced today include:

  • The taxation of these financial instruments will now fundamentally be based on when amounts are recognised in the P&L account, rather than where they appear in the accounts.  This general rule will be supplemented by rules dealing with specific matters such as:
  • items recognised in Other Comprehensive Income and not subsequently transferred to the P&L; and
  • transitional rules to ensure that such matters are only recognised once for corporate tax purposes.
  • Currently the legislation (CTA 2009 s307 and s509) states that credits and debits which are taxable or deductible should ‘fairly represent’ the profits and losses arising from the loan relationships and derivative contracts. HMRC has concluded that the wording “fairly represent” is no longer necessary and will remove it.

These changes will be implemented from 1 January 2016.

Additional changes, to be brought in from Royal Assent include:

  • A new anti-avoidance rule will be introduced to counter any arrangements entered into with a main purpose of obtaining a tax advantage by way of the loan relationship/derivative contracts rules.
  • A new relief will be introduced to exclude taxable amounts which would otherwise arise where arrangements are made to restructure the debts of a company in financial distress with a view to ensuring its continued solvency.