This guidance applies for accounting periods beginning on or after 1st January 2005
This section applies in cases falling outside FA1993/S92, 92A or
92B. It deals with the normal foreign currency accounts case where
the presentation currency is the same as the functional currency.
It also applies to a non-UK resident company making a return for a
permanent establishment in the UK (FA93/S92C (2)).
The profit or loss in the foreign currency after capital
allowances and adjustments made under the Corporation Tax rules is
translated into sterling. This applies to profits or losses
calculated in accordance with GAAP so includes profits or losses
from a trading or rental business, loan relationships, derivative
contracts and intangible fixed assets. It excludes capital gains
(CFM10592), foreign dividends etc, which are calculated in
sterling.
The London branch of a US company submits a return of accounts for the year to 31 December 2008 showing the following:
| Income | $200,000 |
| Expenses | $125,000 (including entertainment expenditure $10,000) |
| Capital allowances | $15,000 |
| Profits | $60,000 |
| Losses brought forward | £8,750 (in sterling, see CFM10585). |
The profits have to be computed for corporation tax in
accordance with generally accepted accounting practice. The
corporation tax rules disallow entertainment expenditure so the net
profit is $70,000. This is translated into sterling using the
average exchange rate for the year £1:$1.6 giving a profit for
UK tax purposes of £43,750 less £8750 losses brought
forward is £35,000.
