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HMRC internal manual

Business Income Manual

Foreign exchange: introduction

If a business makes sales or purchases in a foreign currency, or has assets or liabilities that are denominated in foreign currencies, its accounts will reflect foreign exchange gains or losses.

How foreign exchange differences arise is explained at CFM61030 onwards. This background information is relevant to both companies and unincorporated businesses.

Corporation Tax

Exchange gains and losses that arise on the monetary assets or liabilities of companies are taxed or relieved under the loan relationships rules in Part 5 Corporation Tax Act 2009. You can find detailed guidance at CFM60000 onwards.

Income Tax

The guidance that follows relates only to unincorporated businesses. This includes partnerships, provided at least one partner is an individual. It does not apply to companies within the charge to corporation tax. It deals with:

  • the rate of exchange that traders should use to translate foreign currency amounts into sterling (BIM39505 onwards).
  • the tax treatment of exchange differences arising on monetary assets or liabilities of the business (BIM39520 onwards).
  • businesses that prepare accounts in a non-sterling currency (BIM39580).
  • Statement of Practice SP02/02 sets out the HMRC practice on how exchange differences should be treated in the tax computations of unincorporated businesses. CTISA (Technical) will advise in cases of difficulty that cannot be resolved by looking at SP02/02.