Bringing fair value profits or losses into account on currency and commodity contractsU.K.

10.—(1) For the purposes of paragraph 17C(1)(c) of Schedule 26 to the Finance Act 2002—

(a)there is prescribed the aggregate of the credits and debits representing any [F1regulation 7 or 8] fair value profits or losses excluded in relation to a derivative contract of a company F2...; and

(b)the amount of that aggregate is brought into account for the period in which a termination event occurs.

This is subject to paragraphs (3), (5), (7) and (8).

(2) In paragraph (1) a “termination event” occurs—

(a)on the company ceasing to be a party to the contract; or

(b)if earlier, when the hedged item begins to affect the company’s profit or loss.

(3) If the forecast transaction or firm commitment which is the hedged item mentioned in regulation 7 or regulation 8 is a forecast transaction of, or a firm commitment to a purchase of, anything the expenditure in relation to which—

(a)falls to be taken into account in computing the profits of a trade or property business carried on by the company, or

(b)would fall to be deducted but for any provision of the Corporation Tax Acts prohibiting the deduction of capital expenditure in respect of depreciation of an asset,

then the aggregate mentioned in paragraph (1)(a) in relation to the contract is [F3, subject to paragraph (3A),] to be brought into account in the accounting period in which the expenditure falls or would fall to be deducted.

[F4(3A) If paragraph (3)(b) applies—

(a)the amount to be brought into account in an accounting period is the product of

where—

  • DA is the amount of depreciation recognised in the profit and loss account or income statement in relation to the hedged item in the accounting period,

  • E is the total expenditure on the hedged item, and

  • FVP is the aggregate amount of regulation 7 or 8 fair value profit;

(b)where the hedged item is disposed of, the balance of the aggregate amount mentioned in paragraph (1)(a) which has not been brought into account under sub-paragraph (a) of this paragraph shall be brought into account in the accounting period in which the disposal takes place.]

(4) In paragraph (3) “property business” has the meaning given in paragraph 32(2) of Schedule 29 to the Finance Act 2002(1) (gains and losses of a company from intangible fixed assets).

(5) Where—

(a)part of a contract to which this regulation applies terminates without the company ceasing to be a party to the contract, or

(b)part only of the hedged item begins to be recognised in determining the company’s profit and loss,

paragraph (1)(b) [F5or paragraph (3)] is to apply to a proportionate amount of the aggregate.

(6) In paragraph (5) “proportionate amount” means that proportion of the relevant aggregate amount which is—

(a)in a case where it is part of the contract which matures, the [F6proportion] which the fair value of the part of the contract maturing bears to the fair value of the whole of the contract at that time, and

(b)in any other case the proportion which the fair value of the hedged item [F7which begins] to be recognised bears to the fair value of the whole of the hedged item at that time.

(7) Where immediately on ceasing to be a party to the contract (“the old contract”), the company enters into another contract (“the new contract”) which meets the conditions in regulation 7 or regulation 8 in relation to the same hedged item as was the hedged item in relation to the old contract—

(a)paragraph (1)(b) shall not apply in relation to the old contract, and

(b)the aggregate prescribed in paragraph (1)(a) in relation to the old contract shall be treated for the purposes of the application of this regulation to the new contract as included in the aggregate prescribed in relation to the new contract.

(8) Where as a result of the company (“the transferor company”) ceasing to be a party to the contract (“the old contract”)—

(a)paragraph 28 of Schedule 26 to the Finance Act 2002 [F8would apply but for paragraph 30 of that Schedule], and

(b)the transferee company (within the meaning of paragraph 28 of that Schedule) meets the conditions in regulation 7 or regulation 8 in relation to the contract (“the new contract”) and the same hedged item as was the hedged item in relation to the old contract,

paragraph (9) applies.

(9) Where this paragraph applies—

(a)paragraph (1)(b) shall not apply in relation to the old contract; and

(b)the aggregate prescribed in paragraph (1)(a) in relation to the old contract shall be treated for the purposes of the application of this regulation to the new contract as included in the aggregate prescribed in relation to the new contract.

(10) For the purposes of paragraph 17C(1)(a) of Schedule 26 to the Finance Act 2002, there is also prescribed for any period any credits and debits which—

(a)have for that or any previous period been brought into account in the statement of recognised gains and losses or statement of changes in equity (“equity statements”); or

(b)represent [F9regulation 7 or 8] fair value profits or losses which are transferred in that period from an equity statement—

(i)to the profit and loss account or income statement, or

(ii)directly to the carrying value of an asset or liability.

(11) Where credits and debits are prescribed by sub-paragraph (10) there is also prescribed, for the purposes of paragraph 17C(1)(a) of Schedule 26 to the Finance Act 2002, any debits and credits corresponding to the sub-paragraph (10) credits and debits which are brought into account in the profit and loss account or income statement when—

(a)the hedged item is recognised; or

(b)a forecast transaction is no longer expected to occur.

Textual Amendments

Commencement Information

I1Reg. 10 in force at 1.1.2005, see reg. 1(1)