Corporation Tax Act 2009 section 540

Manufactured interest treated as interest under loan relationship

Section 540 establishes how manufactured interest payments are brought within the loan relationship rules by treating them as if they were real interest under a genuine loan relationship.

• When a company pays manufactured interest, it is treated as if it were paying interest on a loan it has received, bringing it within the Part 5 loan relationship rules
• When a company receives manufactured interest, it is treated as if it were receiving interest on a loan it has made, and the manufactured interest relationship is treated as the loan relationship under which the real interest is payable
• If a company sells or transfers its right to receive manufactured interest through a related transaction, it continues to be treated as having a manufactured interest relationship so that credits and debits from that or any other related transaction are still brought into account
• The credits and debits recognised for manufactured interest follow generally accepted accounting practice, subject to the specific provisions of Part 5, and the rules in Chapter 10 dealing with repos take priority over this section