On 31 January 2008, HMRC published draft legislation and explanatory notes that will introduce an anti-avoidance rule for manufactured payments. The rule will apply for income tax purposes only (a similar rule already applies for corporation tax purposes).

The draft legislation will be enacted in the Finance Act 2008 and will be effective for all manufactured payments (and deemed manufactured payments) made on or after 31 January 2008.

The new anti-avoidance rule will operate to deny an income tax deduction if the manufactured payment or any part of it is made directly or indirectly in consequence of or in connection with arrangements, the main purpose or one of the main purposes of which is to secure a deduction from income tax or any other income tax advantage for any person.