CFM52038 – Corporate Finance Manual – HMRC Internal Manual



The changes made to the provisions relating to derivative contracts by F(2)A15 affected not only the moment when the amounts were to be charged for tax, but also, to a more limited extent, the scope. In addition, in some cases, the adjustments could be very large, so that the transitional amounts were spread over several accounting periods. Therefore, there is some complexity in the rules. The scheme of the rules follows that of the loan relationships.

Amounts previously recorded in OCI

Under the rules prior to F(2)A15, amounts initially recognized as items of ‘other comprehensive income’ OCI would normally be taxable, unless, for example, this disregards regulations provided otherwise ( SI2004/3256). Thereafter, these amounts would not be taxable unless or until they are transferred to profit or loss, or a special rule such as S604A applies, see CFM51036.

F(2)A15/SCH7/PARA120 deals with the scenario where

  • Amounts relating to a derivative contracts issue (S306A, CFM51032) have been accounted for as OCI in accordance with GAAP;
  • These amounts were not subsequently transferred to become profit or loss items in an accounting period beginning before January 1, 2016; and
  • The amounts were taken into account for CT in such a period.

However, foreign currency amounts already recognized under regulations made under CTA09/S606 are not reintroduced under the transitional rules – F(2)A15/SCH7/PARA122.

When calculating the amounts, it is assumed that the accounting method used during the last period beginning before January 1, 2016 has also been applied during the previous periods, unless this previous method is in accordance with GAAP.

An adjustment is then calculated, on a fair and reasonable basis, to avoid amounts being taken into account twice.

The adjustment is then taken into account spread over 5 transitional years as provided for in PARA121:

  • Year 1: 40%
  • Year 2: 25%
  • Year 3: 15%
  • Year 4: 10%
  • Year 5: 10%

When the accounting periods do not coincide with these years, the amounts are distributed on the basis of the count of days.

If, subsequently, there is also a change in the accounting framework, F(2)A15/SCH7/PARA123 requires that the provisions for changing the accounting framework (see CFM52030) be applied as a priority before the transitional rules.

If a company ceases to be in charge of CT or if a process of liquidation begins, PARA 124 requires that all transitional amounts not yet taken into account be withdrawn in the accounting period immediately preceding the event.


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