Income Tax Act 2007 section 809BZD

Deemed interest if borrower is not a partnership

Section 809BZD allows a non-partnership borrower under a type 1 finance arrangement to treat a finance charge recorded in its accounts as interest payable on a loan for income tax purposes, and sets out when that deemed interest is treated as paid.

• Where a type 1 finance arrangement exists and the borrower is not a partnership, the borrower may elect to treat any finance charge recognised under generally accepted accounting practice as interest payable on a loan for income tax purposes
• The section only applies where the arrangement is prevented from having its relevant tax effect on the borrower under section 809BZB, or where section 809BZC applies to the borrower
• If the borrower elects to treat the finance charge as deemed interest, the periodic payments under the arrangement are split into capital repayment elements and interest elements, and the deemed interest is treated as paid when those interest elements are paid
• Where the conditions are satisfied, the deemed interest may qualify for income tax relief as interest on a loan under the normal rules in Chapter 1 of Part 8 of the Income Tax Act 2007