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Securitisation companies
Securitisation companies
Finance Act 2005, s 83 of provides that for 'securitisation companies' within the meaning of that section, 'generally accepted accounting practice' means 'UK GAAP' as it stood at 31 December 2004. This means that the tax computations of such a company are based on UK GAAP at that date, rather than on accounts drawn up on international accounting standards or the UK GAAP equivalent standards (where these are applicable). Section 83 applies for periods ending before 1 January 2008 and is sometimes referred to as the 'interim regime' for securitisation companies.
Many companies to which s 83 applies will fall within The Taxation of Securitisation Companies Regulations 2006 (sometimes referred to as the 'permanent regime' for securitisation companies), and thus it will have ceased to apply to them with effect from the first accounting period beginning on or after 1 January 2007.
However, some companies will not fall within the permanent regime. To ensure that such companies are not required to use international accounting standards or UK GAAP equivalents (where their accounts are drawn up on this basis), FA 2007, s 59 amended FA 2005, s 83 by inserting new subsections 7A and 7B, which allow for regulations to be made permitting s 83 to continue to apply.
Draft regulations have been drawn up which:
- apply to a company that is currently within FA 2005, s 83;
- allow s 83 to continue in operation for such a company for periods of account up to 1 January 2017;
- allow the company to elect out of the continuation of s 83;
- provide for any 'change of accounting practice' or 'change of basis' tax adjustments that would have been made under the Loan Relationships and Derivative Contracts (Change of Accounting Practice) Regulations 2004, or under FA 2002, Sch 2, had the company not been subject to s 83, to be made when it ceases to be within s 83.
In practice, the draft regulations continue the s 83 regime for a period of ten years, or until the capital market arrangement to which it is a party comes to an end (in which case it would cease to be a 'securitisation company' within s 83). If a company to which s 83 currently applies elects out of the continuation of the interim regime, it will be taxed on the basis of its accounts in the usual way. A company to which s 83 ceases to apply for any other reason will similarly be taxed on the basis of its accounts.
Where a company has moved onto international accounting standards or UK GAAP equivalents in an accounting period ending between 1 January 2005 and 1 January 2008, any 'change of accounting practice' adjustments that would have arisen had the company not been subject to s 83 will be spread over the ten years beginning in the first period after 1 January 2008. Similarly if the company ceases to be within section 83 for any other reason in any later period after 2008, any 'change of accounting practice adjustments' will be spread over the ten years beginning with the next following period.
The draft regulations can be found on www.hmrc.gov.uk/practitioners/securitisation/dregs-sec83.htm. HMRC would like to receive comments by 14 September 2007.
