GIM4110 - Taxation of general insurance: annual accounting: currency accounting: APs beginning before 1 January 2005: general rules

The provisions in FA93/S92 to FA93/S94AB (FA93/S92 to FA93/S94 for periods beginning before 1 October 2002) determine how transactions which are denominated or expressed in a currency other than sterling are to be brought into account. General insurers’ accounting in this area, like that of all other companies, is governed by SSAP 20 or FRS 23 and paragraph 219 of the ABI SORP.

The general rule for UK companies with currency assets, liabilities, income and expenditure is that:

• the items of income and expenditure are translated at exchange rates ruling on the date of the transaction - SSAP 20 paragraph 46;
• monetary assets and liabilities are translated at balance sheet dates as well as on acquisition and disposal, and any exchange differences are brought into account in the profit and loss account - SSAP 20 paragraph 48.

This treatment is followed for tax, by virtue of section 92 (tax accounting is in sterling) and 94AA (exchange rates and dates to be used) and see CFM10508 for further details. Exchange gains and losses on monetary assets and liabilities come within the Forex legislation (Chapter 2 Part 2 FA 1993 for periods beginning before 1 October 1992) and in the loan relationships (Chapter 2 Part 4 FA 1996) and derivative contracts (FA02/SCH26) legislation for later periods.

Exchange differences on investment assets (including shares which are treated as monetary assets by general insurers) are covered at GIM5270.

Exchange differences on claims provisions, URP and deferred acquisition expenses are covered at GIM5120. Exchange differences on UPP and on other money debts denominated in currency (outstanding premiums etc) are covered at GIM4110.

If there is any conflict between the Companies Act accounts and the FSA return as to the way in which exchange differences are brought into account, or the currency in which business is accounted for, the Companies Act accounts should be taken as definitive.