CTM76790 - Exchange differences: matching: link with accounting treatment

Under the offset method in SSAP20 any exchange differences on equity investments (including the net investment in an overseas branch), along with the exchange differences on any liability matching that investment, are taken to reserves (see CTM76520). Regulation 10(4) SI1994/3227 ensures that any exchange gain accruing on a matched liability is not left out of account unless the offset method is followed and exchange differences on the asset and liability are taken to reserves. This is to stop companies who take exchange gains to profit and loss account rather than reserves being able to get deferred treatment for tax purposes when it is not adopted in the accounts.

In addition, Regulation 5(3A) (which was inserted by Regulation 4 of the amending regulations - see CTM76510) ensures that relief is not given for an exchange loss on a liability in an accounting period where there is a partial matching election and that exchange loss has been taken to reserves in the company's accounts under the offset method in SSAP20.

The application of this regulation is covered in more detail in CTM76800.

Neither Regulation 10(4) nor Regulation 5(3A) applies where the matched asset is a ship or aircraft. There is no normal accounting practice that would take such differences to reserves. The matching rules are free - standing and allow deferral irrespective of the accounts treatment.