This guidance describes the post-FA 2002 taxation of loan
relationships, derivative contracts and FOREX.
The table below gives a brief history of the tax rules
dealing with currency transactions and currency accounting, and how
they have evolved over the last decade. For details of the specific
guidance that applies to APs beginning before 1 October 2002,
please see the relevant instructions in the CT manual.
| CT14030 | Before FA 1993 | Before FA 1993, there was
virtually no statute law on foreign currency issues. Case law had
established that corporation tax is a sterling tax in the sense
that returns of profits are required to be made in sterling. Case
law, particularly Pattison v Marine Midland (57TC219) established
some guidelines, but disputed issues remained.
A company which accounted in a non-sterling currency had to translate its accounts into sterling in order to compute its profits chargeable to Corporation Tax. |
| CT13620+ | FA 1993 | FA93/S92 laid down the
general rule that a company must compute its trading profits in
sterling, and Chapter 2 Part 2 FA 1993 (the FOREX legislation) gave
rules for the computation of exchange gains and losses on monetary
assets, including the exchange rate to be used on translation.
Local currency rules allowed a company to follow its accounts treatment where the profits or losses (but not capital allowances) of a trade carried on by an overseas branch were translated into sterling using the closing rate/ net investment (CR/NI) method (see CFM8xxx), but it had to elect to compute the branch profits in the local currency. The local currency rules also allowed companies that did not account in sterling to compute their trading profits (but not capital allowances) in the local currency, if they elected to do so. |
| CT14000+ | FA 2000 | A new system applied to
APs beginning on or after 1 January 2000, and ending after 20 March
2000.
The rules on overseas branches were extended to apply to business (rather than just trade) profits and losses, and to include capital allowances. The requirement for an election was abolished. These changes also applied to companies that draw up accounts in non-sterling currency. |
| CFM10510+ | FA 2002 | For APs beginning on or
after 1 October 2002, there have been changes to link the tax
treatment of both currency transactions and currency accounting
closer to accounting practice.
On currency transactions, FA93/S94AAnow sets out the exchange rate to be used where FA93/S92 applies. FA 2002 also assimilated exchange gains and losses on monetary items into the loan relationship and derivative contract rules. A new section, FA93/S93A, was inserted into FA 1993 to set out more specific provisions for cases where a company (or a UK branch) uses the CR/NI method to incorporate the results of a part business into its accounts. Exchange rates to be used in these cases are given by FA93/S94AA. FA93/S93 now deals wholly with currency accounting - the cases where a company (or a UK branch) prepares local currency accounts. * |
