Corporation Tax Act 2009 section 505

Deposit arrangements

Section 505 defines a third type of alternative finance arrangement, where deposits are made with a financial institution and payments are made to the depositor out of profits earned from the pooled use of that money.

• A depositor places money with a financial institution, which pools it with deposits from other persons and uses the combined funds to generate a profit.
• The institution periodically makes or credits payments to the depositor from those profits, in proportion to the amount the depositor originally deposited.
• The payments must, in substance, equate to the return that would be received on a conventional investment of money at interest — the return is then treated as an alternative finance return.
• The arrangement is subject to the arm's length exclusion in section 508, which can exclude arrangements where the terms are not on a commercial basis.