CFM9370 - Taxing forex: bringing into account: calculating net gain or loss

Calculation of the net gain or net loss - Regulation 5

REG 5(2), SI2002/1970 sets out how to calculate the net gain or loss that is brought into account, whether as a chargeable gain or loss, or as a loan relationships credit or debit.

You find the aggregate of the amounts representing exchange gains or losses accrued in relation to liabilities matched with the asset, during the period that the company held the asset.

You can find this aggregate amount in any manner that is just and reasonable. The only restriction is that the just and reasonable method must have regard to the way in which the aggregate has been found in any earlier accounting period, and also to the effect of disposals of loan relationship assets in either the accounting period in question or earlier accounting periods. Neither the company nor HMRC staff should seek to chop and change the just and reasonable method used to calculate this aggregate, just because a particular method, when used on successive disposals, gives a tax result which is either more or less favourable.

There are rules in Reg 7(5) that set out the order in which a liability is matched with an asset when that asset is disposed of. A liability is fully matched with an asset if all of the exchange gain or loss on the liability is taken to reserves. If only part of the exchange gain or loss has been taken to reserves, the liability is matched only to the corresponding extent. Full details can be found at CFM9375+.