CFM52033 – Corporate Finance Handbook – HMRC Internal Handbook

0

These guidelines apply to accounting periods of the company beginning on or after January 1, 2016.

CFA09/S702

For company accounting periods beginning on or after January 1, 2016, Section 614 provides that an adjustment must be made when the tax-adjusted book value of a derivative contract at the end of an accounting period or accounting period differs from that at the beginning of the next one. The book value after tax adjustment is defined in CTA09/S702.

If, for any reason, a change occurs during an accounting period, it should be assumed, for the purpose of calculating the adjusted book value for tax purposes, that an accounting period ended on the date of change – S702(6),

The starting point for determining the adjusted carrying amount for tax purposes is the carrying amount of the asset or liability representing the derivative contract as recorded for accounting purposes. But this is then potentially subject to a list of tax adjustments, as set out in S702(8).

The accounting basis to be applied

The book value should include amounts recognized in the account relating to:

  • the amounts to be paid,
  • amounts paid or received in advance, or
  • impairments (including provisions for bad debts).

It is assumed that the accounting method applied when drawing up the company’s accounts for the period has also been applied in previous accounting periods. Where the actual account policy used is non-GAAP (and therefore S599 applies, see CFMZZZZZ ), the GAAP basis is superseded – S599(2).

Tax adjustments

The list of tax adjustments can be found at S702(8)(a) through (i).

These reflect instances where, for tax purposes, amounts recognized under derivative contracts differ from amounts treated as items of profit and loss in a company’s GAAP accounts, see CFM51034.

There are also rules for dealing with embedded derivatives, which are not stand-alone financial instruments in their own right, to which special rules may apply.

In particular, adjustments may also be necessary with regard to:

  • Hybrid derivatives with embedded derivatives (S584)
  • Loan relationships with embedded derivatives (S585) – there are corresponding rules for the host loan relationship in S465B, see CFM33143.
  • Other contracts with embedded derivatives (s586).
  • Amounts not fully recognized for accounting purposes (S599A and 599B)
  • PT7/CH5 (continuity of processing on transfers within groups or organizations),
  • European cross-border transfers of companies and mergers (PT7/CH9, 10).
Share.

Comments are closed.