Taxation (International and Other Provisions) Act 2010 Schedule 5

Factoring of income etc.: new Chapters 5B and 5C of Part 13 of ITA 2007

Schedule 5 introduces anti-avoidance rules targeting finance arrangements that are used to reduce or avoid income tax, and rules dealing with loan or credit transactions that transfer income.

• Three types of finance arrangement are defined (Types 1, 2 and 3), each involving an advance of money or assets secured against income-producing property, where the accounts record a financial liability — and the rules prevent these arrangements from sheltering income from tax
• Where the anti-avoidance rules apply, any finance charge recorded in the accounts may be treated as deemed interest on a loan for income tax purposes, with payment timing determined by reference to the interest elements of the underlying payments
• A series of exceptions disapply the rules where, for example, the advance is already fully taxed, falls within the loan relationships regime, is covered by repo or alternative finance rules, or involves a sale and finance leaseback — and the Treasury has power to prescribe further exceptions by regulation
• New rules for loan or credit transactions require certain annual payments to be treated as yearly interest (with deduction at source obligations), and impose an income tax charge on a person who transfers income arising from property under such a transaction

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