Part 7Derivative contracts

Chapter 1Introduction

How profits and losses from derivative contracts are dealt with

571General rule: profits chargeable as income

(1)

The general rule for corporation tax purposes is that all profits arising to a company from its derivative contracts are chargeable to corporation tax as income in accordance with this Part.

(2)

But see Chapter 7, which makes provision for cases in which profits arising to a company from its derivative contracts are chargeable to corporation tax as chargeable gains.

572Profits and losses to be calculated using credits and debits given by this Part

(1)

Profits and losses arising to a company from its derivative contracts are to be calculated using the credits and debits given by this Part.

(2)

For exceptions to this section, see sections 652 to 658 (issuers of securities with embedded derivatives: deemed options and contracts for differences).

573Trading credits and debits to be brought into account under Part 3

(1)

This section applies so far as in an accounting period a company is a party to a derivative contract for the purposes of a trade it carries on.

(2)

The credits in respect of the contract for the period are treated as receipts of the trade which are to be brought into account in calculating the profits of the trade for that period.

(3)

The debits in respect of the contract for the period are treated as expenses of the trade which are deductible in calculating those profits.

(4)

So far as subsection (3) provides for any amount to be deductible, it applies despite anything in—

(a)

section 53 (capital expenditure),

(b)

section 54 (expenses not wholly and exclusively for trade and unconnected losses), or

(c)

section 59 (patent royalties).

(5)

For cases in which this section does not apply, see—

(a)

section 616 (disapplication of fair value accounting for certain embedded derivatives), and

(b)

Chapter 7 (chargeable gains arising in relation to derivative contracts).

574Non-trading credits and debits to be brought into account under Part 5

(1)

This section applies if, for an accounting period, there are credits or debits in respect of the derivative contracts of a company which are not brought into account in accordance with section 573.

(2)

Those credits or debits—

(a)

are to be treated as non-trading credits or non-trading debits (within the meaning of Part 5 (loan relationships)) for the period, and

(b)

are accordingly to be brought into account in determining whether the company has non-trading profits or a non-trading deficit from its loan relationships for the period.

(3)

For cases in which this section does not apply, see—

(a)

section 616 (disapplication of fair value accounting for certain embedded derivatives), and

(b)

Chapter 7 (chargeable gains arising in relation to derivative contracts).