Commentary

A1.304 Treatment of alternative finance arrangements

Administration and compliance

A1.304 Treatment of alternative finance arrangements

A1.304 Treatment of alternative finance arrangements

Companies

Where a company is a party to a purchase and resale arrangement or a diminishing shared ownership arrangement within the provisions described in A1.302, the loan relationships regime (see Division D1.7) has effect in relation to the arrangements as if:

  1.  

    (a)     the arrangements were a loan relationship to which the company is a party

  2.  

    (b)     the amount of the purchase price of the asset were the amount of a loan made to the company by, or by the company to, the other party to the arrangements; and

  3.  

    (c)     alternative finance return payable to or by the company under the arrangements were interest payable under that loan relationship1

For a corporate vendor, it is instructive to contrast a sale by a financial institution falling within the Purchase and Re-sale rules described in A1.302 above with a sale on deferred payment terms by a company which is not a financial institution when CTA 2009, s 479 (see D1.743) will apply to treat the money debt arising as a deemed loan relationship for certain purposes such as bad debt relief. In the case of a financial institution vendor, the rules described in A1.302 prescribe how to allocate the difference between the total cash receivable and the original purchase price. For a non-financial institution vendor, one has to fall back on generally accepted accounting practice to decide how much profit should be recognised immediately on sale, and how much profit is to be spread over the deferred instalment

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