FA93/S92 (1) contains the basic rule that for CT purposes,
profits must be computed and expressed in sterling. This is the
default rule that applies to the majority of UK companies whose
profits are measured by reference to sterling even though many
transactions may be carried out in foreign currencies.
This basic rule applies both to periods beginning before 1
January 2005, and to those starting on or after that date.
Not all companies within the charge to corporation tax
prepare accounts in sterling. See
CFM7050+ for information on UK resident
companies that account in a foreign currency. HMRC also receives
returns from the permanent establishments of non-resident companies
based on financial statements prepared in a foreign currency.
Where accounts are prepared in a foreign currency, rules are
needed to take the company out of FA93/S92 and to bridge the gap
between the figures appearing in the accounts and the sterling
figures required in the return. For periods beginning on or after 1
January 2005, FA93/S92A, FA93/S92B and FA93/S92C apply in cases
where the accounts of a company are drawn up in a currency other
than sterling either because the company operates largely in
another currency, the functional currency, or because it uses a
presentation currency for accounts purposes.
FA93/S92 (as amended by FA 2004) refers to “the profits
of a company for an accounting period”. This has a broad
scope, including all items of chargeable profits and gains. The
“currency accounting” rules in sections 92A to 92C,
however, apply only to “profits or losses of the company for
the period that fall to be computed in accordance with generally
accepted accounting practice for corporation tax purposes”.
Such “GAAP-based provisions” are trading profits
(by virtue of FA98/S42 (1)); profits from loan relationships,
derivative contracts and intangible fixed assets; and management
expenses (since ICTA88/S75A ties the period in which they are
deducted to GAAP). Other items – principally chargeable gains
– remain within the basic S92 rule, and so are computed in
sterling. In periods beginning before 1 January 2005, the
“currency accounting” rules worked slightly differently
and there was an explicit exclusion for chargeable gains.
Whatever currency the company uses in its accounts, the CTSA return must always be completed in sterling. The CT600 notes tell the company how the entries in particular boxes should be computed.
