Keeling Schedule

The Loan Relationships and Derivative Contracts (Disregard and bringing into account of profits and losses) regulations 2004 (SI 2004/3256) as amended by SI 2005/2012 & SI 2005/3374

Interpretation

2. - (1) In these Regulations-

"derivative contract" has the same meaning as in Schedule 26 to the Finance Act 2002;

"exchange gain or loss" has the same meaning as in paragraph 54 to Schedule 26 to the Finance Act 2002;

"fair value accounting" has the meaning given in section 103 of the Finance Act 1996;

"fair value profit or loss" means the profit or loss brought into account in relation to a derivative contract or an asset or liability representing a loan relationship where for the period in question fair value accounting is used, and where fair value accounting is used in relation to only part of a contract it means the profit or loss brought into account in relation to that part;

"loan relationship" has the same meaning as in section 81 of the Finance Act 1996;

"a paragraph 50A credit or debit" means the credit or debit to be brought into account in accordance with paragraph 50A of Schedule 26 to the Finance Act 2002;

"a prior period adjustment credit or debit" means so much of any credit or debit as represents a prior period adjustment taken into account by virtue of paragraph 17B(1)(b) of Schedule 26 to the Finance Act 2002 as a result of a change of accounting basis;

"underlying subject matter" has the same meaning as in Schedule 26 to the Finance Act 2002.

(2) In these Regulations-

"for accounting purposes" means for the purposes of accounts drawn up in accordance with generally accepted accounting practice;

"generally accepted accounting practice" has the meaning given in section 50 of the Finance Act 2004; and
"amortised cost", "designated", "effective hedge", "effective interest method", "firm commitment", "forecast transaction", "foreign operation" and "net investment in a foreign operation" have the same meaning as for accounting purposes.
(3) In these Regulations any reference to an asset which is a ship or aircraft includes a reference to a contract-

(a) to which section 67 of the Capital Allowances Act 2001 applies; and

(b) which relates to plant or machinery which is a ship or aircraft.

(4) In these Regulations-

(a) any reference to a hedging instrument includes a reference to part of an instrument; and

(b) any reference to a hedged item includes a reference to part of a hedged item.

(5) For the purposes of these Regulations, a company has a hedging relationship between a derivative contract or a liability representing a loan relationship on the one hand ("the hedging instrument") and an asset, liability, receipt or expense on the other ("the hedged item") if and to the extent that-

(a) the hedging instrument and the hedged item are designated by the company as a hedge; or

(b) in any other case the hedging instrument is intended to act as a hedge of-

(i) the exposure to changes in fair value of a hedged item which is a recognised asset or liability or an unrecognised firm commitment or an identified portion of such an asset, liability or commitment that is attributable to a particular risk and could affect profit or loss of the company;

(ii) the exposure to variability in cash flows that is attributable to a particular risk associated with a hedged item that is a recognised asset or liability or a forecast transaction and could affect profit or loss of the company; or

(iii) a net investment in a foreign operation of the company.

Words in bold inserted by SI 2005/2012 with effect for periods of account beginning on or after 1 January 2005 and ending after 11 August 2005. Definition of exchange gain or loss previously "

Exchange gains or losses arising from liabilities or assets hedging shares etc.

3—(1) For the purposes of section 84A(3A) of the Finance Act 1996 there is prescribed an exchange gain or loss arising to a company in an accounting period in relation to a liability representing a loan relationship of the company which is matched with the whole or part of any shares, ships or aircraft.

(1A) For the purpose of paragraph (1) a liability representing a loan relationship does not include any liability representing a loan relationship within section 100(1) of the Finance Act 1996.

(2) This regulation does not apply if movements in the fair value, or profits or losses arising on the disposal, of any shares, ships or aircraft which are an asset falling within regulation 3(1) are brought into account by the company in computing, for the purposes of corporation tax, the profits of a trade carried on by it which consists of or includes dealing in shares, ships or aircraft.

(3) Shares, ships or aircraft are matched to the greatest possible extent with -

(a) the liability representing the loan relationship designated as a hedge if condition 1 is satisfied;

(b) subject to paragraph (a), the liability representing the loan relationship referred to in condition 2 if that condition is satisfied.

Condition 1

The condition is that for the accounting period, the shares, ships or aircraft are a hedged item under a designated hedge of exchange rate risk in which the liability is the hedging instrument.

Condition 2

The condition is that the currency in which the liability is expressed is such that the company intends, by entering into and continuing to be subject to that liability, ….to eliminate or substantially reduce the economic risk of holding the asset, or part of the asset, which is attributable to fluctuations in exchange rates.

(4) If condition 2 applies, a liability is matched with an asset only to the extent that the carrying value of the liability at the time when the liability is entered into or, if later, when the asset is acquired does not exceed the unmatched carrying value of the asset at that time.

(5) For the purposes of section 84A(3A) of the Finance Act 1996 there is prescribed an exchange gain or loss arising to a company in an accounting period in relation to an asset representing a loan relationship of the company which is matched with the whole or part of any share capital of the company.

(6) An asset is matched with share capital if for the accounting period of the company immediately preceding the first accounting period to which these Regulations apply-

(a) exchange gains and losses on the asset were taken to a reserve; and

(b) set off there against exchange gains and losses on the share capital.

(7) In this regulation-

"carrying value" means, in relation to a liability, the value as shown in the company's accounts of that liability; and

"unmatched carrying value" means, in relation to an asset, an amount equal to the relevant value to the extent that that amount has not previously been matched in accordance with this regulation or regulation 4.

Words in bold, apart words in paragraph (7) (def’n of "unmatched carrying value") inserted by SI 2005/2012 with effect for periods of account beginning on or after 1 January 2005 and ending after 11 August 2005.

Words in paragraph (5) in def’n of "unmatched carrying value" inserted by SI 2005/3374 with effect for periods of account beginning on or after 1st January 2005 and ending after 29th December 2005 previously "value as shown in the company's accounts"

Exchange gains or losses arising from derivative contracts hedging shares etc.

4 - (1) For the purposes of paragraph 16(3A) and 17C(1)(a) of Schedule 26 to the Finance Act 2002 there is prescribed an exchange gain or loss arising to a company in an accounting period in relation to a derivative contract of the company which is matched with the whole or part of any shares, ships or aircraft.

(2) This regulation does not apply if movements in the fair value, or profits or losses arising on the disposal, of any shares, ships or aircraft which are an asset falling within regulation 4(1) are brought into account by the company in computing, for the purposes of corporation tax, the profits of a trade carried on by it which consists of or includes dealing in shares, ships or aircraft.

(3) Shares, ships or aircraft are matched to the greatest possible extent with -

(a) the derivative contract designated as a hedge if condition 1 is satisfied;

(b) subject to paragraph (a), the derivative contract referred to in condition 2 if that condition is satisfied.

Condition 1

The condition is that for the accounting period, the shares, ships or aircraft are a hedged item under a designated hedge of exchange rate risk in which the derivative contract is the hedging instrument.

Condition 2

The condition is that the underlying subject matter of the derivative contract is such that the company intends, by entering into and continuing to be subject to that contract, …. to eliminate or substantially reduce the economic risk of holding the asset, or part of the asset, which is attributable to fluctuations in exchange rates.

(4) If condition 2 applies, a derivative contract is matched with an asset only to the extent that the value of the obligation under the derivative contract at the time when the contract is entered into or, if later, when the asset is acquired does not exceed the unmatched carrying value of the asset at that time.

(4A) For the purposes of paragraph 16(3A) of Schedule 26 to the Finance Act 2002 there is prescribed an exchange gain or loss arising to a company in an accounting period in relation to a derivative contract of the company which is matched with the whole or part of any share capital of the company.

(4B) A derivative contract is matched with share capital in particular where for the accounting period of the company immediately preceding the first accounting period beginning on or after 1st January 2005 -

(a) exchange gains and losses on the derivative contract were taken to a reserve; and

(b) set off there against exchange gains and losses on the share capital.

(5) In this regulation-

"the value of the obligation under the derivative contract" means the value of the obligation of the company to pay in exchange for one currency an amount of a second currency and includes any notional obligation to pay an amount of currency in respect of a contract for differences."

Words in bold, apart from paragraphs (4A) and (4B) and words in paragraph (5) (def’n of "unmatched carrying value") inserted by SI 2005/2012 with effect for periods of account beginning on or after 1 January 2005 and ending after 11 August 2005.

Paragraphs (4A) and (4B) inserted by SI 2005/3374 with effect for periods of account beginning on or after 1st January 2005 and ending after 29th December 2005 In paragraph (5) (def’n of "unmatched carrying value" previously "value as shown in the company's accounts"

Relevant value

4A—(1) For the purposes of regulation 3(7) and 4(5), "relevant value" means -

(a) the value determined on the basis of accounting used in the prior accounting period in the case specified in paragraph (2), and

(b) the value shown in the accounts of the company in any other case.

(2) The case specified is where -

(a) an asset is matched in accordance with regulation 3(3)(b) or 4(3)(b);

(b) in the prior accounting period the exchange gains or losses in relation to that asset were taken to a reserve and set off there against exchange gains or losses in relation to the liability or derivative contract with which the asset is matched; and

(c) the value of the asset shown in the company's accounts was, in accordance with generally accepted accounting practice, determined -

(i) on an historic cost basis of accounting in the first accounting period beginning on or after 1st January 2005, and

(ii) on a different basis of accounting in the prior accounting period.

(3) In this regulation the "prior accounting period" means the accounting period of the company immediately preceding its first accounting period beginning on or after 1st January 2005.

Regulation inserted by SI 2005/3374 with effect for periods of account beginning on or after 1st January 2005 and ending after 29th December 2005

Regulations 3 and 4: supplementary

5 - (1) Where in any accounting period-

(a) a company holds more than one asset in relation to which there are amounts of exchange gains and losses falling within regulation 3 or 4; and

(b) the currency-

(i) in which the assets are denominated and the liability mentioned in regulation 3(1) is expressed; or

(ii) which is the underlying subject matter of the derivative contract mentioned in regulation 4(1),
is the same currency,

the extent to which an asset is matched is determined in accordance with the following rules.

Rule 1

Liabilities and contracts are regarded as matched to the greatest possible extent with assets which are ships or aircraft.

Rule 2

Subject to Rule 1, liabilities and contracts are regarded as matched to the greatest possible extent with assets on the disposal of which a chargeable gain would accrue if the disposal were made on a date falling more than 12 months after the date of acquisition of the asset.

Rule 3

Subject to Rules 1 and 2, liabilities and contracts are regarded as matched with assets on a disposal of which no chargeable gain would be treated as accruing by virtue of Part 1 of Schedule 7AC to the Taxation of Chargeable Gains Act.

(2) If-

(a) part only of a liability falling within the third condition in regulation 3, or

(b) part only of a contract falling within the third condition in regulation 4, could reasonably be expected to eliminate or substantially reduce the economic risk of holding the asset which is attributable to fluctuations in exchange rates, the liability or contract is to be treated as being matched with a corresponding amount of value of an asset.

(3) For the purposes of paragraph (1), a currency in which a liability is expressed or which is the underlying subject matter of a derivative contract, is to be treated, if it is not the case, as the same currency in which an asset is denominated if -

(a) borrowing in that currency, or

(b) the obligation to deliver that currency, could reasonably be expected to eliminate or substantially reduce the economic risk of holding the asset, or part of the asset, which is attributable to fluctuations in exchange rates.

(4) Where regulation 3 or section 84A(3) of the Finance Act 1996 applies to a company in an accounting period in relation to a liability representing a loan relationship there is prescribed, for the purposes of regulation 3 or section 84A(3A) of that Act, an exchange gain or loss treated by virtue of paragraph 6D(2) of Schedule 28AA to the Taxes Act 1988 as arising in that accounting period to another company in relation to the same loan relationship.

Words in bold inserted by SI 2005/2012 with effect for periods of account beginning on or after 1 January 2005 and ending after 11 August 2005. Previously: ###

Rules about fair value profits and losses

6—(1) Regulations 7, 8 and 9 contain specific rules about excluding fair value profits and losses for the purposes of Schedule 26 to the Finance Act 2002.

(2) For the purposes of regulations 7, 8 and 9 it is immaterial that the hedging relationship is not an effective hedge for accounting purposes.

(3) A company may elect that-

(a) regulation 7 shall not apply to its currency contracts which satisfy the conditions contained in regulation 7(1); and

(b) regulation 8 shall not apply to its commodity contracts or debt contracts which satisfy the conditions contained in that regulation.

(4) Any election made under paragraph (3) shall apply to-

(a) all of the currency contracts entered into by the company which satisfy the conditions contained in regulation 7(1); and

(b) all of the commodity contracts or debt contracts entered into by the company which satisfy the conditions contained in regulation 8(1).

(5) Subject to paragraph (5A), a company may elect that regulation 9 shall not apply to its interest rate contracts which satisfy the conditions contained in that regulation but that regulation 9A shall apply, and any election under this regulation shall apply to all of the interest rate contracts entered into by the company which satisfy the conditions contained in regulation 9(1).

(5A) An election under paragraph (5) has no effect in relation to interest rate contracts -

(a) where -

(i) the contract or a portion of the contract ("the hedging instrument") is designated as a hedge in respect of any risks arising in respect of an asset, liability, receipt or expense ("the hedged item");

(ii) fair value profits or losses arising on the hedged item or in relation to any of the risks arising in respect of the hedged item, or any portion of the hedged item, are not brought into account for the purposes of corporation tax for that period; and

(iii) fair value profits or losses arising on the hedging instrument are not recognised in the company's statement of recognised gains and losses or statement of changes in equity;

(b) where the hedged item is a loan relationship to which section 87(1) of the Finance Act 1996 applies.

(6) Subject to paragraph (6A) and (7), an election under paragraph (3) or (5) shall be made before the start of a company's first accounting period to which regulation 7 and 8, or regulation 9 applies to that company or, if later, before -

(a) 1st October 2005 in the case of an election under paragraph (3), or

(b) 31st March 2006 in the case of an election under paragraph (5), and has effect for that accounting period and all subsequent accounting periods unless, in the case of an election under paragraph (3), revoked.

(6A) In any case where a company -

(a) does not use fair value accounting in relation to its derivative contracts for an accounting period beginning on or after 1st January 2005, and

(b) begins to use fair value accounting in a subsequent accounting period ("the subsequent period") in relation to contracts to which regulations 7 or 8, or regulation 9 apply and to which it is a party at the start of that period,
an election under paragraph (3) or (5) shall be made before the start of the subsequent period.

This paragraph does not apply to cases within paragraph (7).

(7) In any case where a company is not a party to any contracts to which regulations 7 or 8, or regulation 9 apply immediately before the start of the company's first accounting period to which the Regulations apply, an election under paragraph (3) or (5) shall be made within 90 days of the company entering into its first contract to which regulation 7 or 8, or regulation 9 applies, as the case may be or, if later, 31st March 2006.

(8) A company may revoke an election under paragraph (3) [….] with effect from the date on which notice is given of it, but contracts entered into before that date shall not be affected.

(9) An election under paragraph (3) [….] shall be made, and may be revoked by the company which made it, by notice in writing to the [sic] Her Majesty's Revenue and Customs.

(9A) An election under paragraph (5) shall be made in writing to Her Majesty's Revenue and Customs and is irrevocable.

(10) If-

(a) a company ("the electing company") makes an election under paragraph (3) or (5) in relation to its contracts;

(b) any other company which is a party to a derivative contract to which the election applies is a member of the same group of companies as the electing company; and

(c) that other company has not made an election under paragraph (3) or (5) in relation to the contract, as the case may be, then the other company is to be treated as if it had made the election but only in relation to that contract.

(11) Paragraph (10) does not apply if the electing company, or the other company, entered into the contract in the ordinary course of a banking business or a business as a securities house.

(12) If a contract to which regulation 7, 8 or 9 applies is transferred by a company in circumstances to which paragraph 28 of Schedule 26 to the Finance Act 2002 would apply but for paragraph 30 of that Schedule-

(a) paragraph 30 shall not apply (and accordingly paragraph 28 shall apply) and paragraph 50A(3A) [sic] of that Schedule shall be modified in accordance with paragraph (12A); and

(b) the transferee company is to be treated as not having made the election under paragraph (3) or (5) as the case may be ("the relevant election") in relation to that contract, if it has made a relevant election in relation to all of its contracts.

(12A) The modification to paragraph 50A(3B) of Schedule 26 to the Finance Act is as follows -

(a) in paragraph (a) delete "and";

(b) after paragraph (b) insert -

" , and

(c) regulations 7, 8 and 9 of the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004."

(13) If a company ("the electing company") makes an election under paragraph (3) or (5) in relation to its contracts-

(a) a contract to which the election applies is transferred to another company ("the transferee company") in circumstances to which paragraph 28 of Schedule 26 to the Finance Act 2002 applies, or

(b) would apply but for paragraph 30 of that Schedule, and the transferee company has not made an election under paragraph (3) or (5) in relation to the contract as the case may be, then the transferee company is to be treated as if it had made the election but only in relation to that contract.

(14) In this Regulation- "group of companies" shall be construed in accordance with section 170 of the Taxation of Chargeable Gains Act 1992; and "securities house" means a person-

(a) who is authorised for the purposes of the Financial Services and Markets Act 2000; and

(b) whose business consists wholly or mainly of dealing as a principal in financial instruments within the meaning of section 349(5) and (6) of the Taxes Act 1988.

Words in bold in paragraph (6) opening words, and paragraph (6A) first sentence inserted by SI 2005/2012 with effect for periods of account beginning on or after 1 January 2005 and ending after 11 August 2005.

Words in bold elsewhere inserted by SI 2005/3374 with effect for periods of account beginning on or after 1st January 2005 and ending after 29th December 2005. In paragraph (3)(a) and (4)(a) previously "7(1)" and "8(1)". In paragraph (6) words from second "before" previously "before 1st October 2005 and has effect for that accounting period and all subsequent accounting periods unless revoked." In paragraph (9) previously "Inland Revenue"
Words in [….] omitted by SI 2005/3374 with effect for periods of account beginning on or after 1st January 2005 and ending after 29th December 2005. Previously "or (5)"

Fair value profits or losses arising from derivative contracts which are currency contracts

7 - For the purposes of paragraph 17C(1)(a) of Schedule 26 to the Finance Act 2002 there is prescribed in relation to a derivative contract whose underlying subject matter consists wholly of currency -

(a) all credits and debits representing the whole or part of the fair value profit or loss arising to a company for an accounting period if -

(i) there is a hedging relationship between the contract or part of the contract and a forecast transaction or a firm commitment ("the hedged item") of the company);

(ii) the hedged item is not one for which fair value profits or losses are brought into account for the purposes of corporation tax;

(b) a company’s paragraph 50A credit or debit in relation to such a contract, if for the accounting period in which the paragraph 50A credit or debit falls to be brought into account, sub-paragraph (a) applies to the contract; and

(c) a company’s prior period adjustment credit or debit in relation to such a contract, if for the accounting period in which the prior period adjustment credit or debit falls to be brought into account, sub-paragraph (a) applies to the contract, and the credits and debits mentioned in sub-paragraphs (a) to (c) together make up the regulation 7 fair value profits or losses.

(3) Where there is a hedging relationship between part of a currency contract and a hedged item, the part of the regulation 7 fair value profit or loss that is prescribed is the part which bears to the whole the proportion which the value of that part of the contract which is in the hedging relationship bears to the value of the whole of the contract.

(4) Paragraph 16(3) of Schedule 26 to the Finance Act 2002 does not apply to any regulation 7 fair value profit or loss.

Words in bold, apart from those below, inserted by SI 2005/2012 with effect for periods of account beginning on or after 1 January 2005 and ending after 11 August 2005.

Words "for which fair value profits or losses are brought into account for the purposes of corporation tax" inserted by SI 2005/3374 with effect for periods of account beginning on or after 1st January 2005 and ending after 29th December 2005. Previously "to which fair value accounting applies for that accounting period"

Profits or losses arising from derivative contracts which are commodity contracts or debt contracts

8 - For the purposes of paragraph 17C(1)(a) of Schedule 26 to the Finance Act 2002 there is prescribed in relation to a commodity contract or a debt contract -

(a) all credits and debits representing the whole or part of the fair value profit or loss arising for an accounting period if -

(i) there is a hedging relationship between the contract or part of the contract and a forecast transaction or a firm commitment ("the hedged item") of the company; and

(ii) the hedged item is not one for which fair value profits or losses are brought into account for the purposes of corporation tax;

(b) a company’s paragraph 50A credit or debit, if for the accounting period in which the paragraph 50A credit or debit falls to be brought into account, sub-paragraph (1)(a) applies to the contract; and

(c) a company’s prior period adjustment credit or debit, if for the accounting period in which the prior period adjustment credit or debit falls to be brought into account, sub-paragraph (1)(a) applies to the contract,
and the credits and debits mentioned in sub-paragraphs (a) to (c) together make up the "regulation 8 fair value profits or losses".

(2) In this regulation-

"a commodity contract" means a derivative contract whose underlying subject matter is commodities unless the contract is an interest rate contract within the meaning of regulation 9(4); and "a debt contract" means a derivative contract whose underlying subject matter is an asset or liability representing a loan relationship unless the contract is an interest rate contract within the meaning of regulation 9(4).

(3) Where there is a hedging relationship between part of a commodity contract or part of a debt contract as the case may be and a hedged item, the part of the regulation 8 fair value profit or loss that is prescribed is the part which bears to the whole the proportion which the value of that part of the contract which is in the hedging relationship bears to the value of the whole of the contract.

Words in bold, apart from those below, inserted by SI 2005/2012 with effect for periods of account beginning on or after 1 January 2005 and ending after 11 August 2005.

Profits or losses arising from derivative contracts which are interest rate contracts

9. - (1) For the purposes of paragraph 17C(1)(a) of Schedule 26 to the Finance Act 2002 there is prescribed all credits and debits representing the whole or part of the fair value profit or loss arising to a company in relation to its interest rate contracts in an accounting period if -

(a) there is a hedging relationship between the contract or a portion of the contract and any of the risks arising in respect of an asset, liability, receipt or expense ("the hedged item"); and

(b) fair value profits or losses arising on the hedged item or in relation to any of the risks arising in respect of the hedged item, or any portion of the hedged item, are not brought into account for the purposes of corporation tax for that period.

(2) Where paragraph (1) applies, credits and debits shall be brought into account for the purposes of paragraph 17C(1)(b) of Schedule 26 to the Finance Act 2002 on the assumption that an appropriate accruals basis had been used in relation to the contract for that accounting period.

(2A) Where an interest rate contract -

(a) becomes a contract to which paragraph (1) applies, or

(b) ceases to be a contract to which paragraph (1) applies, the amount to be brought into account for the purposes of paragraph 17C(1)(b) of Schedule 26 to the Finance Act 2002 is such amount as is just and reasonable in the circumstances and with regard to whether as a result of the change any amounts cease to be brought into account or are brought into account more than once.

(3) Where paragraph 16(3) of Schedule 26 to the Finance Act 2002 or regulation 4 apply to a contract to which this regulation applies nothing in this regulation is to require any exchange gains or losses in relation to that contract to be brought into account.

(4) In this regulation-

"an appropriate accruals basis" in relation to a derivative contract is one where-

(a) the contract is shown in the company's accounts at cost (which may be nil), and the cost is adjusted for any cumulative amortisation of any premium or other amount falling to be recognised in arriving at the cost of the contract;

(b) the aggregate of-

(i) the amount of periodical payments under the contract, or in the case of a swap contract under which only a single payment is to be made, the value of the payment and

(ii) the credits or debits representing interest arising, on the assumption that an effective interest method is used, in respect of the asset or liability representing a loan relationship which is the hedged item, represent the credits or debits that would be given by generally accepted accounting practice in relation to an asset or liability representing a loan relationship whose terms include those of both the hedged item and the interest rate contract;

(c) exchange gains and losses are recognised as a result of the translation of the contract at the balance-sheet date; and

(d) profits and losses which arise as a result of the contract coming to an end before its stated date of maturity are amortised and brought into account over the unexpired term of the hedged item.

"an interest rate contract" means-

(i) a derivative contract whose underlying subject matter is, or includes, interest rates, or

(ii) if not falling within paragraph (i), a swap contract in which payments fall to be made by reference to a rate of interest or to an index determined by reference to income or retail prices.

(5) For the purposes of paragraph 17C(1)(a) of Schedule 26 to the Finance Act 2002, there is also prescribed for any period any credits and debits which-

(a) have for that or any previous period been brought into account in the statement of recognised gains and losses or statement of changes in equity ("equity statements"); and

(b) represent regulation 9 fair value profits or losses which are transferred in that period from an equity statement-

(i) to the profit and loss account or income statement, or

(ii) directly to the carrying value of an asset or liability.

(6) Where credits and debits are prescribed by sub-paragraph (5) there is also prescribed, for the purposes of paragraph 17C(1)(a) of Schedule 26 to the Finance Act 2002, any debits and credits corresponding to the sub-paragraph (5) credits and debits which are brought into account in the profit and loss account or income statement when-

(a) the hedged item is recognised; or

(b) a forecast transaction is no longer expected to occur.

(7) This regulation does not apply to any contract to which paragraphs 6, 7 or 8 of Schedule 26 to the Finance Act 2002 applies.

Words in bold, apart from paragraph (2A) inserted by SI 2005/2012 with effect for periods of account beginning on or after 1 January 2005 and ending after 11 August 2005.

Paragraph (2A) inserted by SI 2005/3374 with effect for periods of account beginning on or after 1st January 2005 and ending after 29th December 2005.

9A - (1) For the purposes of paragraph 17C(1)(a) of Schedule 26 to the Finance Act 2002 there is prescribed all credits and debits representing the whole or part of the fair value profit or loss arising to a company in relation to an interest rate contract in an accounting period if -

(a) the contract or a portion of the contract ("the hedging instrument") is designated as a hedge in respect of any risks arising in respect of an asset, liability, receipt or expense ("the hedged item");

(b) fair value profits or losses arising on the hedging instrument are recognised in accordance with generally accepted accounting practice in the company's statement of recognised gains and losses or statement of changes in equity ("equity statements"); and

(c) the company has made an election under regulation 6(5).

This is subject to paragraph (2).

(2) Credits and debits which -

(a) are brought into account in the profit and loss account or income statement (including debits and credits previously brought into account in an equity statement and transferred to the profit and loss account or income statement), or

(b) are taken to the carrying value of an asset or liability, are not prescribed for the purposes of paragraph 17C(1)(a) of Schedule 26 to the Finance Act 2002.

This is subject to paragraph (3).

(3) In relation to credits or debits within paragraph (2)(a), there is prescribed for the purposes of paragraph 17C(1)(a) of Schedule 26 to the Finance Act 2002 any debits or credits corresponding to the paragraph (2)(a) debits or credits which are reflected in an equity statement.

(4) In this regulation "an interest rate contract" has the same meaning as in regulation 9.

Regulation inserted by SI 2005/3374 with effect for periods of account beginning on or after 1st January 2005 and ending after 29th December 2005.

Bringing fair value profits or losses into account on currency and commodity contracts

10—(1) For the purposes of paragraph 17C(1)(c) of Schedule 26 to the Finance Act 2002-

(a) there is prescribed the aggregate of the credits and debits representing any regulation 7 or 8 fair value profits or losses excluded in relation to a derivative contract of a company; and

(b) the amount of that aggregate is brought into account for the period in which a termination event occurs.
This is subject to paragraphs (3), (5), (7) and (8).

(2) In paragraph (1) a "termination event" occurs-

(a) on the company ceasing to be a party to the contract; or

(b) if earlier, when the hedged item begins to affect the company's profit or loss.

(3) If the forecast transaction or firm commitment which is the hedged item mentioned in regulation 7 or regulation 8 is a forecast transaction of, or a firm commitment to a purchase of, anything the expenditure in relation to which-

(a) falls to be taken into account in computing the profits of a trade or property business carried on by the company, or

(b) would fall to be deducted but for any provision of the Corporation Tax Acts prohibiting the deduction of capital expenditure in respect of depreciation of an asset,

then the aggregate mentioned in paragraph (1)(a) in relation to the contract is, subject to paragraph (3A), to be brought into account in the accounting period in which the expenditure falls or would fall to be deducted.

(3A) Subject to paragraph (3B), if paragraph (3)(b) applies -

(a) the amount to be brought into account in an accounting period is the product of

DA	xFVP
E

where -

DA is the amount of depreciation recognised in the profit and loss account or income statement in relation to the hedged item in the accounting period, E is the total expenditure on the hedged item, and FVP is the aggregate amount of regulation 7 or 8 fair value profit;

(b) where the hedged item is disposed of, the balance of the aggregate amount mentioned in paragraph (1)(a) which has not been brought into account under sub-paragraph (a) of this paragraph shall be brought into account in the accounting period in which the disposal takes place.

(3B) Where the disposal mentioned in paragraph (3A)(b) is to a company ("the transferee") which is a member of the same group of companies, in applying paragraph (3A)(a) to the transferee FVP shall be treated as meaning the fair value profits and losses of the transferor.

(3C) In paragraph (3B), "group of companies" has the meaning given in paragraph 28(6) of Schedule 26 to the Finance Act 2002.

(4) In paragraph (3) "property business" has the meaning given in paragraph 32(2) of Schedule 29 to the Finance Act 2002 (gains and losses of a company from intangible fixed assets).

(5) Where-

(a) part of a contract to which this regulation applies terminates without the company ceasing to be a party to the contract, or

(b) part only of the hedged item begins to be recognised in determining the company's profit and loss,

paragraph (1)(b) or paragraph (3) is to apply to a proportionate amount of the aggregate.

(6) In paragraph (5) "proportionate amount" means that proportion of the relevant aggregate amount which is-

(a) in a case where it is part of the contract which matures, the proportion which the fair value of the part of the contract maturing bears to the fair value of the whole of the contract at that time, and

(b) in any other case the proportion which the fair value of the hedged item which begins to be recognised bears to the fair value of the whole of the hedged item at that time.

(7) Where immediately on ceasing to be a party to the contract ("the old contract"), the company enters into another contract ("the new contract") which meets the conditions in regulation 7 or regulation 8 in relation to the same hedged item as was the hedged item in relation to the old contract-

(a) paragraph (1)(b) shall not apply in relation to the old contract, and

(b) the aggregate prescribed in paragraph (1)(a) in relation to the old contract shall be treated for the purposes of the application of this regulation to the new contract as included in the aggregate prescribed in relation to the new contract.

(8) Where as a result of the company ("the transferor company") ceasing to be a party to the contract ("the old contract")-

(a) paragraph 28 of Schedule 26 to the Finance Act would apply but for paragraph 30 of that Schedule, and

(b) the transferee company (within the meaning of paragraph 28 of that Schedule) meets the conditions in regulation 7 or regulation 8 in relation to the contract ("the new contract") and the same hedged item as was the hedged item in relation to the old contract, paragraph (9) applies.

(9) Where this paragraph applies-

(a) paragraph (1)(b) shall not apply in relation to the old contract; and

(10) For the purposes of paragraph 17C(1)(a) of Schedule 26 to the Finance Act 2002, there is also prescribed for any period any credits and debits which-

(a) have for that or any previous period been brought into account in the statement of recognised gains and losses or statement of changes in equity ("equity statements"); and

(b) represent regulation 7 or 8 fair value profits or losses which are transferred in that period from an equity statement-

(i) to the profit and loss account or income statement, or

(ii) directly to the carrying value of an asset or liability.

(11) Where credits and debits are prescribed by sub-paragraph (10) there is also prescribed, for the purposes of paragraph 17C(1)(a) of Schedule 26 to the Finance Act 2002, any debits and credits corresponding to the sub-paragraph (10) credits and debits which are brought into account in the profit and loss account or income statement when-

(a) the hedged item is recognised; or

(b) a forecast transaction is no longer expected to occur.

Words in bold, apart from "Subject to paragraph (3B)," in paragraph (3A), paragraph (3B) and (3C) inserted by SI 2005/2012 with effect for periods of account beginning on or after 1 January 2005 and ending after 11 August 2005.
Words "Subject to paragraph (3B)," in paragraph (3A), Paragraph (3B) and (3C) inserted by SI 2005/3374, and "and" substituted for "or" in paragraph (10)(a) with effect for periods of account beginning on or after 1st January 2005 and ending after 29th December 2005.