This guidance applies for accounting periods beginning on
or after 1st January 2005
FA93/S92D governs the exchange rate used to translate the CT
profit or loss in FA1993/S92B and S92C. In line with IAS 21 (and
FRS 23), the rate is
The most accurate result will be found by translating each
transaction in the accounting period on a strict transaction by
transaction basis. Commonly the average rate will be used if it
provides a good approximation. Where, however, transactions are
affected by seasonal variations the translation should be done on a
strict transaction by transaction basis or an appropriate weighted
average basis. The method adopted should be applied consistently
from year to year.
Where necessary, HMRC staff should seek advice from their
accountant on appropriate weighted averages.
There is no longer a general rule for translating currency
equivalents. The rule in FA93/S94AA (see
CFM10511) provided that an arm’s
length exchange rate must be used in translating foreign currency
amounts into another currency in the accounts. This was an entirely
separate matter from the translation of a foreign currency profit
into sterling because it relates to every day currency
transactions, for example, where a company with sterling accounts
makes a sale of stock in Euros. The section is no longer needed
because IAS 21 sets out rules for companies on the exchange rate to
be used in these circumstances. In particular, IAS 21 requires that
transactions in a foreign currency must be translated into the
company’s functional currency at the spot rate on initial
recognition. Where there are numerous transactions, an average rate
for a week or month may be used provided rates do not fluctuate
significantly during that period.
FA98/S42 and equivalent rules in the loan relationship and
derivative contract regimes at FA96/S85A and FA02/SCH26/PARA17A,
ensure that companies follow generally accepted accounting practice
for tax purposes.
