BIM40095 - Receipts: general: foreign exchange gains and losses

Businesses that prepare accounts under International Financial Reporting Standards (BIM31025) will recognise and measure foreign exchange gains or losses in accordance with IAS 21. Businesses using UK GAAP may have adopted FRS 23 (Effect of Changes in Foreign Exchange Rates). Many enterprises, however, continue to use SSAP20: Foreign currency translations. the older accounting standard that deals with exchange translation adjustments.

Companies

Exchange gains or losses shown in company accounts will generally arise on financial assets or liabilities. Their tax treatment will depend on the asset or liability involved. Exchange differences that arise on loans, deposits or debts (including trade debts, and foreign currency held as coins or notes) are dealt with under the loan relationships rules (CTA09/PART5). Full guidance on these rules is in the Corporate Finance Manual (CFM).

Non-corporates

There is no specific legislation that applies to exchange gains or losses shown in the accounts of non-corporates. The general principles for computing trading profits will apply. In particular, it will be necessary to consider whether the exchange differences arise on capital or revenue account..

A full description of the treatment of foreign exchange gains and losses is in BIM39500 onwards. There is also a Statement of Practice, SP2/02, that sets out HMRC practice with regard to the exchange gains and losses of unincorporated businesses.