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TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 17116
Experience:  International tax
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We are intending to raise new investment using Deeply

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We are intending to raise new investment using Deeply Discounted Securities [DDS] - we are interested in; [a] any constraints on the life of DDS whether we can pay interim Investment Premiums during the life of the DDS and [c] any hidden catches we should endeavour to avoid.
Our investors will be both UK domiciled and overseas.


Unlike ‘Deep Discounted Bond’; due to its limited time horizon, is a short-money loan the DDS is not considered interest. It has no life constraint or limit but should be for more than 1 year.

HMRC could decide to treat a discount as disguised interest. There is nothing to indicate that that approach is to be adopted by HMRC, and they state that the proposed new disguised interest provisions are to be modelled on the corporation tax provisions in Chapter 2A of Part 6 of CTA 2009 and those rules do not seek to treat a discount properly so called as interest. You would not want to make the profit element too closely linked mathematically to an interest calculation based on a notional interest rate or pay in any way other than Gross on date of agreement.

Paying over the life may place the payment to look like interest which would require withholding tax for foreign investor.

You are not required to get HMRC approval but I strongly suggest you continue to be advised by your tax advisor should you continue.

Please do not forget or ignore to give a positive rating (look for the STARS or SMILEY FACES). It adds nothing to your costs but it assists me.

Customer: replied 1 year ago.
TaxRobin - thank you, this meets with my understanding and I have two follow up questions:
[a] As a secondary lender we will be receiving interest payments typically at the end of a loan term which will not necessarily be co-terminus with the life of our DDS's - does this create a corporation tax challenge as at loan repayment we will receive the full interest on the loan of which a major proportion will be due to the investor by way of their investment premium but paid to them until the end of the DDS period?
[b] Out intention is to issue [say] a two year DDS of face value £120 at a discounted issue price of £100 - does this match you point about not looking like interest above?


As to yes it does. As to [a], a tougher point but my understanding, DDS rules defer any debit that would otherwise have been brought into account in the relevant period by the debtor company until the accounting period in which the DDS is redeemed. If not connected to the DDS then no.

Please remember that you are required to rate in a positive way (look for the STARS or SMILEY FACES) so I am credited with responding.

That first line should read as to yes.

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