Chapter STSM021245

Published date07 March 2016
Record NumberSTSM021245
CourtHM Revenue & Customs
IssuerHM Revenue & Customs
Hybrid Capital Instruments: what is a hybrid capital instrument?

Hybrid capital is a form of capital that combines characteristics of bonds and equities.

Hybrid capital instruments differ from normal debt instruments in that they contain some limited equity-like features.

Hybrid capital instruments may include a right for the issuer to cancel or defer interest payments and/or the instrument may contain terms that allow the principal to be released or converted into shares in certain circumstances.

Who issues hybrid capital instruments?

Banks and insurance companies are required to hold a certain amount of regulatory capital. This capital usually includes a mixture of share capital and debt funding. The regulations covering this regulatory capital require that debt instruments issued to raise this capital must have features that allow the bank or insurer to continue operating in the event of the bank or insurer coming under financial strain and having depleted levels of capital. This means the principal on some debt instruments issued by banks and insurers (or their parent companies) can be written down or converted to equity in certain circumstances. For some types of capital the issuer must also have the right to cancel or defer interest payments.

Hybrid capital is issued by some companies outside the regulated financial sector to protect their credit rating. These are most commonly issued by companies in the utilities and communications sector to support long term capital investment projects.

Hybrid capital instruments: Election

The hybrid capital instruments rules (section 475C Corporation Tax Act 2009 (CTA09)) require the issuer to make an irrevocable election into the new rules for each instrument within six months of issue.

For instruments in existence before 1 January 2019 the election should be made on or before 30 September 2019. This deadline will normally be before the company has received a notice to file a Corporation Tax (CT) return, so therefore the election will normally be made under Schedule 1A Taxes Management Act 1970 outside the CT return, rather than under paragraphs 57 or 58 of Schedule 18 Finance Act 1998.

Where a group or company has a Customer Compliance Manager (CCM) it should send the election to the CCM. In all other cases the election should be sent to the following mailbox: hybrid.loanrelationshipelection@hmrc.gov.uk

The election should include:

  • the name of the entity making the election
  • details of the instrument (a...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT