This guidance describes the post-FA 2002 taxation of loan
relationships, derivative contracts and FOREX.
The procedure is set out in FA93/S93 (4). Compute the profits
and losses (including any capital allowances) of the business for
the period in the currency of the accounts (or, in the case of a UK
branch of a non-resident company, the currency of the return of
accounts).
This means that where the company carries on a trade, the
starting point for the Case I computation is the profit shown in
the foreign currency. Adjustments are then made in accordance with
the rules of Case I, in currency terms. For example, the currency
amount of any entertaining expenditure is added back. Capital
allowances are also computed in currency terms - see
CFM10530+.
Exchange gains and losses will only arise where the company
has monetary assets and liabilities denominated in a currency which
is not the reporting currency - this may, of course, be sterling.
Other income amounts, such as non-trading loan relationship
credits, Sch A or Case V profits, or Case VI profits from
intangible fixed assets, are similarly calculated in currency
terms.
Staying in this currency, adjust these figures of profit to
take into account any brought forward figures for
Compute the sterling equivalent so far as it is needed for the
return.
This will usually mean that all profits are converted into
sterling. However, not all losses will be converted - only those
that can be used to give relief. For example, the company may
surrender trading losses to another group company which accounts in
sterling. The company should convert just enough of the loss to
cover the profit. To see an example
CFM10526a.
If a company claims group relief and the losses surrendered
to it include both foreign currency and sterling losses, HMRC staff
should be willing to agree any reasonable allocation of the losses
to the claim.
Any unused balances are carried forward in the relevant
currency.
