Finance Act 1996

90 Changes of accounting method. U.K.

(1) This section applies where

[F1 (a)] different authorised accounting methods are used for the purposes of this Chapter as respects the same loan relationship for different parts of the same accounting period or for successive accounting periods.

[F2 (b) the change of method is in pursuance of a requirement of this Chapter as to the basis of accounting to be used for the purposes of this Chapter in the case of the loan relationship; and

(c) the case does not fall within subsection (1A) below]

[F3 (1A) The case falls within this subsection if, for the purposes of the company’s statutory accounts, the different authorised accounting methods mentioned in subsection (1) above are also used as respects the loan relationship for the same parts of the same accounting period or, as the case may be, for the same successive accounting periods as are mentioned in subsection (1) above.]

(2) Where, in the case of any loan relationship, the use of any authorised accounting method is superseded in the course of any accounting period by the use of another—

(a) the assumptions specified in subsection (4) below shall be made;

(b) each method shall be applied on those assumptions as respects the part of the period for which it is used; and

(c) the credits and debits given by the application of those methods on those assumptions shall be brought into account in the accounting period in which the change of method takes effect.

(3) Where, in the case of any loan relationship, the use of any authorised accounting method is superseded as from the beginning of an accounting period by the use of another—

(a) a net credit or debit shall be computed (treating any debit used in the computation as a negative amount) by—

(i) aggregating the credits and debits which, on the assumptions specified in subsection (4) below, would have been given in respect of that relationship for the successive accounting periods by the use for each period of the accounting method actually used for that period;

(ii) aggregating the credits and debits so given without the making of those assumptions; and

(iii) subtracting the second aggregate from the first;

and

(b) the net credit or debit shall be brought into account for the purposes of this Chapter in the accounting period as from the beginning of which the change of method takes effect.

(4) The assumptions mentioned in subsections (2) and (3) above are—

(a) that the company ceased to be a party to the relationship immediately before the end of the period, or part of a period, for which the superseded method is used;

(b) that the company again became a party to that relationship as from the beginning of the period or, as the case may be, part of a period for which the other authorised accounting method is used;

(c) that the relationship to which the company is deemed to have become a party is separate and distinct from the one to which it is deemed to have ceased to be a party;

(d) that the amount payable under the transaction comprised in each of the assumptions specified in paragraphs (a) and (b) above was equal to the fair value of the relationship; and

(e) so far as relevant, that that amount became due at the time when the company is deemed to have ceased to be a party to the relationship or, as the case may be, to have again become a party to it.

(5) Where—

(a) a mark to market basis of accounting is superseded by an accruals basis of accounting in the case of any loan relationship,

[F4 (aa) the relationship is one to which the company in question is still a party at the end of the period or part of a period for which the accruals basis of accounting is used, and

(b) the amount which would have accrued in respect of that relationship in the period or part of a period for which the accruals basis of accounting is used falls to be determined for the purposes of this section in accordance with the assumptions mentioned in subsection (4) above,]

[F5 that amount shall be computed using for the closing value as at the end of that period or part of a period the amount specified in subsection (6) below.]

[F6 (6) That amount is—

(a) in a case to which subsection (3) above applies, the amount taken for the purposes of subsection (3)(a)(ii) above to be the closing value as at the end of the period for which the accruals basis of accounting is used; and

(b) in a case to which subsection (2) above applies, the amount which, without the making of the assumptions mentioned in subsection (4) above, would be taken to be the closing value as at the end of the part of the period for which that basis is used.]

(7) In this section “fair value” has the same meaning as in section 85 above.

Textual Amendments

F1 Words in s. 90(1) renumbered (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) as s. 90(1)(a) by virtue of Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 10(2)

F2 S. 90(1)(b)(c) added (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 10(2)

F3 S. 90(1A) inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 10(3)

F4 S. 90(5)(aa) inserted (19.3.1997 with effect as mentioned in s. 83(5) of the amending Act) by 1997 c. 16, s. 83(2)

F5 Words in s. 90 substituted (19.3.1997 with effect as mentioned in s. 83(5) of the amending Act) by 1997 c. 16, s. 83(3)

F6 S. 90(6) substituted (19.3.1997 with effect as mentioned in s. 83(5) of the amending Act) by 1997 c. 16, s. 83(4)