The requirement to deduct tax at source from payments of 'yearly interest' is considered at A4.424 above. This article discusses how the requirement to deduct tax applies when funding bonds are issued.
Where a company, public institution or other public authority lacks the funds to pay interest on securities it has issued, it may issue funding bonds to the creditor in lieu of the interest. These may take the form of shares, further loan notes, bonds or promissory notes1.
An issue of funding bonds is treated for income tax and corporation tax purposes as if it were a payment of an amount of interest equal to the market value
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