The Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004

Interpretation

2.—(1) In these Regulations—

“derivative contract” has the same meaning as in Schedule 26 to the Finance Act 2002;

“exchange gain or loss” includes, in the case of a derivative contract whose underlying subject matter is currency (and no other subject matter), all fair value profits or losses brought into account in relation to the contract;

“fair value accounting” has the meaning given in section 103 of the Finance Act 1996(1);

“fair value profit or loss” means the profit or loss brought into account in relation to a derivative contract or an asset or liability representing a loan relationship where for the period in question fair value accounting is used, and where fair value accounting is used in relation to only part of a contract it means the profit or loss brought into account in relation to that part;

“underlying subject matter” has the same meaning as in Schedule 26 to the Finance Act 2002.

(2) In these Regulations—

“for accounting purposes” means for the purposes of accounts drawn up in accordance with generally accepted accounting practice;

“generally accepted accounting practice” has the meaning given in section 50 of the Finance Act 2004(2); and

“amortised cost”, “designated”, “effective hedge”, “effective interest method”, “firm commitment”, “forecast transaction”, “foreign operation” and “net investment in a foreign operation” have the same meaning as for accounting purposes.

(3) In these Regulations any reference to an asset which is a ship or aircraft includes a reference to a contract—

(a) to which section 67 of the Capital Allowances Act 2001(3) applies; and

(b) which relates to plant or machinery which is a ship or aircraft.

(4) In these Regulations—

(a) any reference to a hedging instrument includes a reference to part of an instrument; and

(b) any reference to a hedged item includes a reference to part of a hedged item.

(5) For the purposes of these Regulations, a company has a hedging relationship between a derivative contract or a liability representing a loan relationship on the one hand (“the hedging instrument”) and an asset, liability, receipt or expense on the other (“the hedged item”) if and to the extent that—

(a) the hedging instrument and the hedged item are designated by the company as a hedge; or

(b) in any other case the hedging instrument is intended to act as a hedge of—

(i) the exposure to changes in fair value of a hedged item which is a recognised asset or liability or an unrecognised firm commitment or an identified portion of such an asset, liability or commitment that is attributable to a particular risk and could affect profit or loss of the company;

(ii) the exposure to variability in cash flows that is attributable to a particular risk associated with a hedged item that is a recognised asset or liability or a forecast transaction and could affect profit or loss of the company; or

(iii) a net investment in a foreign operation of the company.

(1)

Section 103 was inserted by paragraph 17(2)(b) of Part 1 of Schedule 10 to the 2004 Act.

(2)

2004 c. 12.

(3)

2001 c. 2.