CTM76050 - Local currency accounting (FA00 scheme): new basic rule
- FA93/S92 (as amended by FA00) restates the basic rule that for
CT purposes, profits and losses must be computed and expressed in
sterling. In the original scheme, this section applied only to
trades
, but following FA00 it applies to the profits and
losses of a
business or part of a business.
- All companies will now automatically follow the currency of
their accounts (or branch financial statements) in calculating
their taxable profits, and determining their foreign exchange gains
or losses. For example, if a company prepares Euro accounts it will
calculate exchange gains or losses by reference to the Euro.
Exchange differences will only arise if the company has trade
debtors, creditors, loans etc in currencies other than the Euro.
- Under FA93/S93, the use of a currency other than sterling is mandatory, where one of these conditions is met:
- the company’s accounts are drawn up in a currency other than sterling in accordance with normal accountancy practice (Section 93 (2)(a)) and, in the case of a non-UK company, the UK branch return is made in a non-sterling currency in accordance with normal accounting practice (Section 93 (2)(b)), or
- the accounts are drawn up in sterling, but as far as the business is concerned they are drawn up using the closing rate/net investment method from financial statements prepared in a currency other than sterling (Section 93(3)(a)), or
- in the case of a non-UK company, the branch return is prepared in sterling but so far as part of the business is concerned it is prepared from non-sterling financial statements using the closing rate/investment method.
