An important area of focus for businesses – especially given the unprecedented challenges posed by the COVID-19 lockdown – will be maintaining or improving cashflow, especially in the short term. Those businesses with substantial real estate may look at sale and leaseback transactions. But, for many, debt finance will be the obvious way to achieve this – for example, by raising new debt or renegotiating with existing lenders to capitalise interest by issuing shares, or seeking modified terms (deferring interest for example), or the release or transfer of the debt.
This note outlines the key UK tax issues to consider for each of these debt options from the perspective of a corporate borrower that is a UK corporation tax payer (i.e. UK tax resident or trading through a permanent establishment in the UK or, from April 2020, carrying on a UK property business). Many Israeli companies that have business in the UK will be subject to UK corporation tax, and could really benefit from knowing about these debt restructuring tax issues. Even Israeli lenders that are not themselves subject to UK corporation tax but looking to lend to the UK might find the summary of UK withholding tax on interest useful. If you are unsure whether or not you would be subject to UK corporation tax (and other UK taxes), DLA Piper would be happy to assist with resolving this.
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