Consolidated CofAP regulations
The Loan Relationships and Derivative Contracts CofAP (Change of Accounting Practice) Regulations 2004 SI 2004 NO. 3271 (amended by SI 2005/3383)
Citation, commencement and effect
1—(1) These Regulations may be cited as the Loan Relationships and Derivative Contracts (Change of Accounting Practice) Regulations 2004 and shall come into force on 1st January 2005.
(2) These Regulations have effect in relation to periods of account beginning on or after 1st January 2005.
Interpretation
2. In these Regulations -
"amortised cost basis of accounting" has the meaning given by section 103(1) of the Finance Act 1996;
"earlier period" and "later period" have the meanings given in paragraph 19A of Schedule 9 to the Finance Act 1996;
"fair value accounting" has the meaning given by section 103(1) of the Finance Act 1996;
"impairment" and "impairment loss" have the meanings given by section 103(1) of the Finance Act 1996.
Credits and debits not to be brought into account
3. The debits and credits prescribed in regulation 4 shall not be brought into account in the first accounting period of a company beginning on or after 1st January 2005, but, subject to regulation 3C, shall be brought into account in accordance with regulations 3A and 3B.
Prescribed debits and credits brought into account over prescribed period
3A—(1) Subject to regulation 3B, debits and credits prescribed in regulation 4 ("the applicable amounts") shall be brought into account in accordance with this regulation.
(2) One tenth of the applicable amounts shall be brought into account for each year in the period of ten years ("the prescribed period") beginning with the later of -
(a) the first accounting period of the company beginning on or after 1st January 2006, and
(b) the later period.
(3) If amounts representing fractions of the applicable amounts fall to be brought into account under paragraph (2), those amounts shall be -
(a) apportioned between the accounting periods beginning or ending in that year, and
(b) brought into account in the periods to which they are allocated in accordance with that apportionment.
(4) An apportionment between accounting periods of amounts to be brought into account under paragraph (2) for any year shall be made according to how much of the year is included in each period, and, if that year and the accounting period are the same, the apportionment shall be effected by the allocation of the whole of the amounts to that accounting period.
(5) If a company ceases to be within the charge to corporation tax before the end of the prescribed period, the whole of the applicable amounts, so far as they have not fallen to be brought into account for an earlier accounting period, shall be brought into account as a credit or debit for the accounting period ending when the company ceases to be within that charge.
This paragraph does not apply if paragraph (6) applies.
(6) In a case where there is a qualifying transfer -
(a) these Regulations apply to the successor or
transferee for the remainder of the prescribed
period for the purpose of bringing into account
the applicable amounts, so far as they have not
fallen to be brought into account for an earlier
accounting period, and
(b) if -
(i) there are two or more successors or transferees, or
(ii) the transfer is of part only of the business, those applicable amounts shall be apportioned between the parties in a manner that is just and reasonable in the circumstances.
(7) Paragraph (6) does not apply where the successor or transferee is resident outside the United Kingdom unless the business to which the qualifying transfer relates is carried on by the successor or transferee through a permanent establishment in the United Kingdom.
(8) In this regulation -
"qualifying transfer" means -
(a) a transaction to which section 343(1) of the Income and Corporation Taxes Act 1988 (company reconstruction without a change of ownership) applies,
(b) a transaction to which that section would apply if for "trade" there were substituted "investment business or property business", or
(c) a transfer of a business which consists of the effecting or carrying out of contracts of long-term insurance from one person ("the transferee") to another person ("the transferor") ("an insurance business transfer scheme");
"successor" has the meaning given in section 343(1) of the Income and Corporation Taxes Act 1988;
"transferee" and "transferor" have the meanings given in sub-paragraph (c).
Prescribed debits and credits in relation to dormant accounts brought into account in the first accounting period beginning on or after 1st January 2007.
3B - (1) The debits and credits prescribed in regulation 4(1)(a) or (b) which are specified in paragraph (2) shall be brought into account in the first accounting period of the company beginning on or after 1st January 2007.
(2) The specified debits and credits are those which represent the carrying value of a liability owed by a bank or building society to a depositor which at the end of the earlier period had no carrying value.
(3) In this regulation -
"bank" has the meaning given by section 840A of the Income and Corporation Taxes Act 1988;
"building society" has the meaning given by section 832(1) of that Act;
"carrying value" has the meaning given by paragraph 19A(4A) of Schedule 9 to the Finance Act 1996.
Prescribed debits and credits not brought into account
3C - (1) The debits and credits prescribed in regulation 4(1) which are specified in paragraph (2) shall not be brought into account in determining a company's profit or loss for any period.
(2) The specified debits and credits are -
(a) debits and credits in relation to a derivative contract to which a company is treated as a party by section 94A(2)(b) of the Finance Act 1996 where section 92A of that Act (convertible securities etc: debtor relationships) applied to the debtor relationship in relation to that contract at the end of the company's period of account immediately preceding the first period of account to begin on or after 1st January 2005;
(b) debits and credits in relation to a derivative contract to which paragraph 45L of Schedule 26 to the Finance Act 2002 (derivatives not embedded in a loan relationship) applies;
(c) debits and credits in relation to a derivative contract which is an interest rate contract to which regulation 9 of the Disregard Regulations applies;
(d) debits and credits in relation to a loan relationship specified in paragraph (3) representing the difference between the value of the loan relationship recognised for accounting purposes at the end of the earlier period and the value recognised at the beginning of the later period, where in accordance with generally accepted accounting practice -
(i) in the earlier period the loan relationship was brought into account at a contract rate, and
(ii) in the later period the loan relationship
is brought into account at a spot rate of exchange,
to the extent that the debit or credit is attributable
to the different rates of exchange;
(e) debits and credits in relation to an interest rate contract which is designated as a cash flow hedge of an interest rate risk in respect of which an election has been made under regulation 6(5) of the Disregard Regulations, to the extent that -
(i) they arise as a result of changes in interest rates, and
(ii) regulation 9A(2)(a) of the Disregard Regulations applies or will apply to them.
(3) A loan relationship is specified if -
(a) it is denominated in a currency which is not the company's functional currency,
(b) a hedging relationship exists between the loan relationship and a derivative contract, and
(c) as a result of that hedging relationship, the derivative contract is within regulation 9 of the Disregard Regulations.
(4) In this regulation -
"designated", "cash flow hedge" and "income statement" have the same meaning as for accounting purposes;
"the Disregard Regulations" means the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004;
"functional currency" has the meaning given in section 92E(3) of the Finance Act 1993;
"hedging relationship" has the meaning given in regulation 2(5) of the Disregard Regulations.
Prescribed debits and credits
4 - (1) Subject to paragraph (2), the debits and credits prescribed for the purpose of regulation 3 are any debits or credits of a company beginning on or after 1st January 2005 which must be brought into account in accordance with -
(a) section 85B(1)(b) of the Finance Act 1996 (amounts recognised in determining company’s profit or loss)where the debit or credit represents a prior period adjustment;
(b) paragraph 19A(3) of Schedule 9 to the Finance Act 1996 (adjustment on change of accounting policy);
(c) paragraph 17B(1)(b) of Schedule 26 to the Finance Act 2002 (amounts recognised in determining company’s profit or loss) where the debit or credit represents a prior period adjustment;
(d) paragraph 50A(2) of Schedule 26 to the Finance Act 2002 (adjustment on change of accounting policy).
(2) The debits and credits falling within paragraph (3) and (4) are not prescribed.
(3) The debits or credits falling within this paragraph are debits or credits in relation to an asset or liability representing a loan relationship of a company (referred to in this regulation respectively as "a relevant asset" and "a relevant liability") where the latest date on which it falls to be fully discharged is within an accounting period of the company which begins on or after 1st January 2005 and …. before 1st January 2006.
(4) The debits and credits falling within this paragraph are debits and credits in relation to a derivative contract to which a company is a party where -
(a) the company is treated as party to the contract by section 94A(2)(b) of the Finance Act 1996 and the corresponding loan relationship to which the company is treated as a party by paragraph (b) of that section is one to which paragraph (3) applies; or
(b) the Disregard Regulations do not apply to that contract and there is a hedging relationship between the derivative contract and a hedged item which is a relevant asset or relevant liability.
Amounts recognised in determining a company’s profit or loss in relation to held-to-maturity assets
5 - (1) Subject to paragraph (6), if the assets representing a loan relationship of a company satisfy the conditions prescribed in paragraph (5) and in accordance with generally accepted accounting practice those assets -
(a) were previously dealt with for accounting purposes on an amortised cost basis of accounting and
(b) are subsequently required to be dealt with
for accounting purposes on the basis of fair value
accounting,
the debits and credits to be brought into account
for the purposes of Chapter 2 of Part 4 of the
Finance Act 1996 shall continue to be determined
on an amortised cost basis of accounting.
(2) Subject to paragraph (6), the amounts described in paragraphs (3) and (4) are excluded from section 85B(1) of the Finance Act 1996 in the circumstances specified in those paragraphs.
(3) If the assets representing a loan relationship of a company satisfy the conditions prescribed in paragraph (5), the amount is any debit or credit representing the difference between the carrying value of the asset recognised for accounting purposes at the time the company ceased to treat the asset as held-to-maturity and the fair value of the asset immediately after that time.
(4) If the assets representing a loan relationship of a company cease to satisfy the conditions prescribed in paragraph (5), the amount is any debit or credit representing profits or losses -
(a) brought into account in the statement of realised gains or losses or statement of changes in equity for the periods in which the asset was treated as available-for-sale,
(b) which are transferred from the statement of realised gains or losses or statement of changes in equity for the period in which the company ceased to satisfy the conditions in paragraph (5), and
(c) which are brought into account in the company’s profit and loss account or income statement for the period in which the company ceased to satisfy the conditions in paragraph (5) and any subsequent accounting period.
(5) The conditions prescribed in relation to an asset are that -
(a) in accordance with generally accepted accounting practice, it is treated at any time as available-for-sale,
(b) in accordance with generally accepted accounting practice, it has at any previous time been treated as held-to-maturity,
(c) it becomes treated as available-for-sale as a result of the disposal by the company of one or more assets previously treated as held-to-maturity, and
(d) the amortised cost of the asset or assets disposed of (referred to in paragraph (c)) in the accounting period in which the disposal was made is less greater than 10% of the amortised cost of all the assets then treated by the company as held-to-maturity in that period.
(6) A company may elect that this regulation does not apply.
(7) An election under paragraph (6) applies to all of the company’s assets which satisfy the conditions in paragraph (5).
(8) An election under paragraph (6) -
(a) shall be made by notice in writing to HMRC,
(b) within 90 days of the end of the company’s accounting period in which the disposal mentioned in paragraph (5)(c) took place, has effect for the succeeding accounting period and all subsequent accounting periods until the assets representing a loan relationship of the company cease to satisfy the conditions prescribed in paragraph (5).
