CFM10505 - Currency transactions and accounting: background and overview

Introduction

This guidance describes the post-FA 2002 taxation of loan relationships, derivative contracts and FOREX.

Corporation tax, like all taxes imposed by the UK Parliament, is a sterling tax and is payable on the profits of companies calculated in sterling terms. Accordingly all the entries on a corporation tax return have to be in pounds sterling.

This gives rise to two separate questions.

Currency transactions

Many companies preparing accounts in sterling will enter into transactions in foreign currencies, and have assets and liabilities denominated in foreign currencies, so that their accounts show exchange gains and losses. A company may undertake such foreign currency operations through one or more foreign branches, or as part of its main business, or both. How should the company treat its non-sterling transactions when it comes to prepare its tax return?

Currency accounting

But not all companies within the charge to corporation tax prepare accounts in sterling. Where a company draws up accounts in a non-sterling currency, rules are needed to bridge the gap between the figures in the accounts and the sterling figures needed to go into the return.

The remainder of this section provides a summary of the situations in which you are likely to need to refer to the currency transactions and currency accounting guidance and a history of the relevant provisions with cross-references to guidance on the earlier rules.

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