This guidance applies for accounting periods beginning on
or after 1st January 2005
Where FA93/S92B or FA93/92C applies, CT losses, as well as
profits, must be translated into sterling after being calculated in
the non-sterling functional currency. This means that all
are carried forward in sterling. Such losses and reliefs are
deducted from future profits only
after such amounts have been translated into
sterling. This is a change from the previous regime (see CTM76060
and
CFM10526) when these amounts were
brought forward and carried forward in the functional currency.
Where a company has amounts brought forward in a foreign
currency under the previous regime, these should be translated back
into sterling at the spot rate on the last day of the final
accounting period under the old rules. That is the accounting
period immediately before the accounting period beginning on or
after 1 January 2005. The transition rule is at
FA04/SCH10/PARA79.
Lopfen Ltd has €28,000 in management expenses carried
forward at its accounting date, 31 March 2005. For its accounting
period beginning 1 April 2005 the company is no longer permitted to
bring forward or carry forward management expenses in Euros.
€28,000 is translated into sterling at the exchange
rate applying on 31 March 2005 which is £1: €1.454.
Management expenses brought forward in the accounting period ending
31 March 2006 are therefore £19,257.
In year ended 31 March 2006, the company had non-trading loan
relationship profits of €117,000 and management expenses of
€6,000. The average exchange rate for the year was £1:
€1.500 and it was appropriate to use an average rate to
translate the Euro amounts (see
CFM10590). The company’s tax
computation would be:
| £ | £ | |
| Case III income - €117,000 @ £1:€1.5 | 78,000 | |
| Management expenses of year - €6,000 @ £1:£1.5 | 4,000 | |
| Management expenses brought forward | 19,257 | |
| Total management expenses | (23,257) | |
| Profits chargeable to CT | 54,743 |
