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The taxpayer company entered into five repo transactions with X Bank. It bought gilts for £812 million and resold them to the bank several days later for a fixed price of £785 million. It received interest (‘coupon’ payments) on the gilts of £28.8 million. Overall it made a £1.8 million profit on the transaction.
The company did not include a credit entry for the coupon payments and claimed that it had made a loss of £27 million. HMRC rejected the claim.
The Special Commissioner dismissed the taxpayer’s appeal but the High Court allowed its subsequent appeal.
The issues before the Court of Appeal were the amount for which the taxpayer should account in respect of the coupons and the amount it should be deemed to have paid to X Bank by way of deemed manufactured payments.
The judges in the Court of Appeal said the amount of...
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