The Financial Secretary to the Treasury has announced changes to block a tax loophole involving the corporation tax rules on manufactured payments. New legislation will be introduced to clarify the corporation tax treatment of such payments received by companies in the course of certain sale and repurchase ('repo') transactions. 

The clarification follows a recent challenge to the rules which could have resulted in a different accounting and tax treatment of manufactured payments. This could have meant that taxable profits are significantly lower level than actual profits. The written ministerial statement stated that the 'Exchequer consequences could be very significant' with some sources estimating that up to £1bn per year could have been lost to the Exchequer.

The new rules will aim to ensure that manufactured payments are taken into account in calculating profits chargeable to corporation tax if they are taken into account in computing accounting profits.

In keeping with a growing trend, the proposed legislation for the blocking of this loophole will be backdated to 1 October 2007. This is the date the relevant legislation was introduced.