Timing issue

Intra-group swap transfer and closure notice

In August 2003 Bristol & West plc (B&W) transferred a swap contract to its sister company Bank of Ireland Business Finance (BIBF) for £91m intending to take advantage of a loophole in the derivatives transitional provisions in FA 2002. This had changed the tax rules for the swap from an accruals to a mark-to-market basis.

The new regime applied to a company’s first accounting period beginning on or after 1 October 2002. B&W’s accounting period began on 1 April 2003 so was in the new regime but BIBF’s accounting year began on 1 September 2002 so was outside it when the transfer took place. The aim was to rely on the rollover rule in FA 2002 Sch 26 para 28 so that the £91m paid to the taxpayer would disappear from B&W’s accounts but not...