CFM20010 - Accounting for corporate finance: overview of guidance

Overview

This part of the guidance is intended to give HMRC staff an overview of the way corporate finance transactions may be presented in company accounts. However, HMRC staff should always first ask the advice of a local compliance accountant if the treatment of a corporate finance transaction in the accounts is not clear.

In recent years, the accounting treatment of corporate finance transactions has undergone considerable change. UK GAAP as it stood prior to 1 January 2005 has been amended to incorporate many of the developments in International Accounting Standards (IAS), while in some cases it is possible to use IAS as an alternative. In addition, the EU requires IAS to be used in some circumstances.

Guidance as to who must or who can use IAS, and from what dates, is given in CFM20020. Guidance on when the revised UK GAAP must be used is at CFM20030.

General guidance on IAS is at CFM21000+. This also covers the relationship between IAS and UK GAAP since 1 January 2005 (see CFM21040).

General guidance on UK GAAP prior to 1 January 2005 is at CFM22000+ for lenders and at CFM23000+ for borrowers.

Separate, specialised, guidance is provided for certain types of corporate finance transactions as shown below. This guidance covers the position as it applied under UK GAAP before 1 January 2005 and any changes introduced by IAS.

• Derivatives CFM24000+
• Hybrid debt CFM25000+
• Foreign Exchange Transactions CFM26000+
• Hedging CFM27000+.

IAS, IFRS and ‘old UK GAAP’

Users of the Corporate Finance Manual should note that, for convenience, accounting standards post 2005 are generally referred to as ‘IAS’. In fact, the term now more commonly used is ‘IFRS’ which is usually taken to include both IFRS and the older IAS-prefixed accounting standards.

Also for convenience, the CFM uses the term ‘old UK GAAP’ to mean UK GAAP excluding FRS 26 and associated standards. Note that the terms ‘old UK GAAP’ and ‘new UK GAAP’ are defined in the loan relationships rules at CTA09/S416 as meaning UK generally accepted accounting practice as it applied for periods of account beginning, respectively, before or after 1 January 2005.

Tax

Although the tax rules for loan relationships and derivative contracts broadly follow the accounting treatment, they are prescriptive in many areas about how accounting methods should be applied, and override the accounting treatment in other areas.