CFM1110 – Corporate Finance Manual – HMRC Internal Manual

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What is the Corporate Finance Handbook?

The Corporate Finance Manual (CFM) contains guidelines from HM Revenue and Customs on the tax treatment of corporate finance. This primarily refers to the tax rules on loan relationships and derivative contracts in Parts 5 to 7 of the Corporate Tax Act 2009. The CFM also includes guidance on other tax rules that appear apart of the main body of legislation that are relevant to the taxation of corporate finance.

What do we mean by “corporate finance”?

Corporate finance covers fundraising and money management by businesses. A business needs money to finance the start-up and expansion of its business and to meet its daily expenses. Some of its funding will come from issuing shares, but almost all companies will need to borrow money at some point as well.

The manager of a small business may have to decide whether to borrow from the bank or from a relative. The CFO of a large multinational corporation may need to assess the costs of issuing bonds in international money markets in a currency other than pound sterling or enter into a securitization to raise additional funds.

Almost all businesses borrow and lend. A business can invest excess funds in a deposit account, or it can invest in another business. Some companies lend each other their surpluses in the form of “commercial paper”, others invest in “eurobonds”.

The return on these loans, or deposits and investments, can take various forms, such as interest, discounts, an increase in the value of assets, or some other type of return.

Many companies make sales or purchases in a foreign currency, or borrow or lend in a foreign currency, or invest in assets, such as shares in a foreign subsidiary, that are denominated in a foreign currency. As a result of such transactions, a business will have foreign exchange gains or losses in its accounts.

All of these activities carry risks and opportunities. Interest rates can go up or down, exchange rates can fluctuate, the counterparties to a debt can default. A business can use derivatives such as futures, swaps, and options to “hedge” these risks and manage cash flow. These products can also be used for investment, trading and speculative purposes.

At any level, these activities constitute corporate finance, and the Corporate Finance Handbook provides guidance on the corporate tax treatment of these matters.

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