Income Tax Act 2007 section 939

Duty to retain bonds where issue treated as payment of interest

Section 939 deals with the obligation to retain funding bonds when their issue is treated as a payment of interest, and how those retained bonds can be used to satisfy income tax liabilities.

• When funding bonds are issued in lieu of interest on a debt owed by a government, public body, or company, and that issue is treated as a deemed payment of interest, the issuer must retain bonds equal in value to income tax at the basic rate on the deemed interest.
• Retaining bonds in this way is treated as satisfying the duty to deduct income tax at source from the deemed interest, and the retained bonds may be tendered to HMRC in satisfaction of any income tax due on that deemed interest.
• HMRC may in turn use tendered bonds to settle any amount they owe to the original creditor in connection with the underlying debt, and the bonds are valued at their original issue value for this purpose.
• Any restrictions on transfer or tender attached to the bonds do not prevent them from being tendered to HMRC or onward to the creditor; "funding bonds" is broadly defined to include bonds, stocks, shares, securities, and certificates of indebtedness, but excludes instruments payable in goods, services, or vouchers.