SCHEDULES
C1C9C3C2C5C4C6C7C8SCHEDULE 26Derivative contracts
Sch. 26 extended (retrospective to 30.9.2002) by Finance Act 2003 (c. 14), s. 177(4)(8)(11)
Sch. 26 applied by 1988 c. 1, s. 440(2B) (as amended (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 70)
Sch. 26 modified by 1996 c. 8, s. 94A (as inserted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 13)
Sch. 26 applied (with modifications) (5.10.2004) by Energy Act 2004 (c. 20), s. 198(2), Sch. 9 para. 24 (with s. 38(2)); S.I. 2004/2575, art. 2(1), Sch. 1
Sch. 26 applied (with modifications) (5.10.2004) by Energy Act 2004 (c. 20), s. 198(2), Sch. 9 para. 12 (with s. 38(2)); S.I. 2004/2575, art. 2(1), Sch. 1
Sch. 26 modified (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 7; S.I. 2005/1444, art. 2(1), Sch. 1
Sch. 26 modified (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 19; S.I. 2005/1444, art. 2(1), Sch. 1
Sch. 26 modified (19.7.2006) by Finance Act 2006 (c. 25), s. 136(2)(e)
Part 9Miscellaneous
45LF1Derivatives not embedded in a loan relationship
F81
This paragraph applies where—
a
a company is party to a non-financial embedded derivative or a nested derivative (“the contract”),
F2aa
the contract is a derivative contract falling within paragraph 3(1)(a),
ab
paragraph 45M does not apply in relation to the contract,
b
regulation 9 of the Disregard Regulations (interest rate contracts) does not apply to the contractF3, and
c
no election having effect in relation to the derivative contract is or has been made under sub-paragraph (2A),
F5...
F6F111A
In this paragraph “the original contract” means—
a
the non-financial contract mentioned in paragraph 2A to which the company is party, and as a result of which the company falls to be treated under paragraph 2A(2) as party to the non-financial embedded derivative; or
b
the hybrid derivative mentioned in paragraph 2B to which the company is party, and as a result of which the company falls to be treated under paragraph 2B(2) as party to the nested derivative.
1B
Where this paragraph applies—
a
paragraph 14(2) and (3) (trading and non-trading credits and debits) do not apply in relation to the derivative contract, but
b
sub-paragraph (1C) or (2) applies in relation to the original contract, according to F13whether that contract is a hybrid derivative or a non-financial contract .
1C
If the original contract is F12a hybrid derivative, profits and losses are to be computed for the purposes of this Schedule as if that contract—
F14a
were not one where the rights and liabilities are treated for accounting purposes as divided as mentioned in sub-paragraph (2) of paragraph 2B, and
b
were not one in relation to which a fair value basis of accounting is used.
2
F9If the contract is a non-financial contract, profits and losses are to be brought into account for the purposes of the Corporation Tax Acts in relation to that contract as if that contract—
F15a
were not one where the rights and liabilities are treated for accounting purposes as divided as mentioned in sub-paragraph (2) of paragraph 2A, and
b
were not one in relation to which a fair value basis of accounting is used.
F10and, accordingly, this Schedule shall not apply to the contract, but section 42 of the Finance Act 1998 shall apply to the contract as if fair value accounting were not generally accepted accounting practice in relation to the company.
This sub-paragraph has effect notwithstanding paragraph 1(2).
F42A
A company may elect that this paragraph is not to apply to any of its contracts F7unless—
a
the contract is a contract of long-term insurance, or
b
the underlying subject matter of the embedded derivative contract is, or includes, commodities.
Paragraph 45LA contains further provisions about elections under this sub-paragraph.
2B
Any such election—
a
must be made by giving notice in writing to Her Majesty’s Revenue and Customs,
b
must be made before the end of the first applicable accounting period of the company, and
c
is irrevocable.
2C
For the purposes of sub-paragraph (2B), the “first applicable accounting period” is the first accounting period ending on or after 17th August 2005 in which the conditions in paragraphs (a) to (b) of sub-paragraph (1) are satisfied.
3
In this paragraph “the Disregard Regulations” means the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004.
Sch. 26 modified by 1996 c. 8, s. 86(3C) (as inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by 2002 c. 23, s. 82, Sch. 25 Pt. 1 para. 6(3))