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The taxpayer company entered into five repo transactions with X Bank whereby it bought gilts from X Bank for £812 million and resold them to the bank some days later for £785 million.
The taxpayer received interest of £28.8 million on the gilts while it held them making therefore an overall profit of £1.8 million.
The taxpayer did not declare the interest as a credit in its return for the relevant accounting period on the basis that that amount was not reflected in its accounts which had been prepared in accordance with an authorised accruals method of accounting.
HMRC said the taxpayer should bring in some credit to cancel out the debit in its tax computation and wished to amend the taxpayer’s return accordingly. The taxpayer appealed.
The Special Commissioner dismissed the appeal but this decision was overturned in the High Court.
The...
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