CFM60010 – Corporate Finance Manual – HMRC Internal Manual


Exchange gains and losses

This part of the Corporate Finance Manual deals with the taxation of foreign exchange (“forex”) gains and losses.

For an explanation of the business context of transactions that give rise to exchange rate differences, see CFM12000. For guidance on the accounting treatment of foreign currency transactions, see CFM26000.


Prior to the FA 1993, there were no special tax rules to deal with foreign exchange gains and losses on debts and foreign exchange contracts. They could be taxed as profits, or as part of the calculation of taxable gains, or ignored altogether. It all depended on the circumstances in which they occurred. The new FA Rules 1993 had the effect of bringing tax treatment more in line with accounting practice. This is discussed in more detail at CFM61010. These rules applied to accounting periods beginning on or after March 25, 1995.

In 2002, a new reform took place. The special rules have been removed and foreign exchange gains and losses have been assimilated to the normal rules on loan relationships (CFM30000) and derivative contracts (CFM50000), with effect for accounting periods beginning on or after 1 October 2002.

Basic rules on loan relationships or derivative contracts apply to exchange differences

CFM61000 explains the application of the basic tax rules on exchange rate differences. In the majority of cases, it will not be necessary to make calculation adjustments for foreign exchange gains and losses. See CFM61150 for a summary of circumstances in which you may need to consider the treatment of foreign exchange gains and losses.

Introduction of new UK GAAP

The new UK GAAP applies to all accounting periods beginning on or after January 1, 2015. The most significant change, as far as forex is concerned, is that the SSAP 20 has been removed and can no longer be applied. This previously allowed a company to take the exchange differences on a loan out of reserves (instead of the profit or loss) when the loan was “matched” to the company’s net investment in a foreign subsidiary. foreigner. Under New UK GAAP, such treatment is only permitted in consolidated accounts. There is further guidance on the differences between SSAP 20 and New UK GAAP at CFM26015.

Going forward, companies will need to use IAS 21, FRS 101 or FRS 102. These standards are very similar in how they deal with forex.

Forex Matching (Net Investment Hedge)

The main area where special rules apply to foreign exchange differences is where a company uses foreign currency liabilities to hedge the risk of currency fluctuations affecting the value of foreign currency assets, for example its net investment in a foreign subsidiary. ‘foreigner. As above, SSAP 20 was previously available to businesses when accounting for these currency differences and CFM62000 explains how it worked and the resulting tax treatment. The Disregard Regulations preserve this treatment once International Financial Reporting Standards or new UK GAAP are adopted.

Foreign currency transactions and accounts denominated in foreign currency

CFM64000 explains the rules introduced by FA 1993 on how companies (and permanent establishments of non-resident companies) which set up accounts in a currency other than sterling should present their tax calculations. This is a separate matter from how exchange rate differences in company accounts should be taxed or exempted, but is included for convenience in these guidelines. Significant changes have been made to these rules for accounting periods beginning on or after December 29, 2007. These changes are described in CFM64300+. CFM64500+ provides guidance on choosing a designated currency when accounts are set up in a foreign currency.

Anti-avoidance rules

Anti-avoidance rules relating to forex are primarily contained in the main body of Lending Relationship Legislation (CFM38500). Certain anti-avoidance rules relating to forex matching are described in CFM63000.

Former rules and transitional provisions

CFM86000 explains the rules applicable to exchange gains and losses and accounts established in a foreign currency between 2002 and 2005, as well as the transitional provisions applicable to the matching relating to the transition from the FA 1993 regime to the FA 2002 regime.

Forex and non-businesses

These guidelines do not apply to individuals (including individual partners in a partnership) or trusts. Practice Notice 2/02 (which supersedes SP1/87) sets out HMRC’s views on the tax treatment of foreign exchange gains and losses in unincorporated business accounts. Guidance can be found in the Business Income Manual at BIM39500.


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