Budget Notes

BN30 FUNDING BONDS

Who is likely to be affected?

1. Companies and individuals claiming repayments of tax deducted from interest, which has been paid to them in the form of funding bonds, and where the tax deducted from the interest was originally paid to HM Revenue & Customs (HMRC) in the form of funding bonds.

General description of the measure

2. Legislation will be introduced in Finance Bill 2008 to provide rules to confirm that HMRC can satisfy such repayment claims by using all or part of the funding bonds used to pay the tax deducted.

3. The legislation will allow HMRC to request that the bond issuer divides, if necessary, any funding bond held by HMRC so that the repayment claim can be satisfied using part of the funding bond.

Operative date

4. The measure has effect for funding bonds issued on or after 12 March 2008.

Current law and proposed revisions

5. The current law does not address how a repayment claim in respect of tax treated as paid to HMRC by a funding bond should be handled and this has led to uncertainty. In practice, HMRC has satisfied the repayment claim using a funding bond where this has been feasible.

6. The legislation will introduce a new subsection to section 939 of the Income Tax Act 2007 (ITA). It will have effect only where the interest on the loan or debt is paid by funding bonds, and the tax deducted from that interest is also paid to HMRC using funding bonds. Where a repayment claim for the tax deducted is subsequently made new subsection 4A allows the Commissioners for HM Revenue & Customs to give to the claimant funding bonds in satisfaction of the claim.

7. The legislation will also insert a new section, section 940A into ITA. If the Commissioners do not hold funding bonds in denominations suitable for satisfying the repayment claim, this measure will allow the Commissioners to request that the funding bond issuer divides the funding bonds as required so that the repayment claim can be satisfied

Further advice

8. A technical note, including the draft legislation, was published on 13 February 2008. Draft guidance on this measure will also be published on the HM Revenue and Customs website shortly after the publication of the Finance Bill.

9. If you have any questions about this change, please contact Lesley Hamilton on 020 7147 2564 (email: lesley.hamilton@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk