HMRC internal manual

Business Income Manual

BIM39550 - Foreign exchange: monetary assets: practical approach

In practice, exchange differences arising on a non-sterling current account held by a trader and used wholly or mainly for trade purposes can normally be accepted as trading receipts or expenses.

Where foreign currency is held in a deposit account or similar account, you will need to look at such things as:

  • whether the account is being actively used for business transactions, in other words it functions as a current account,
  • whether the foreign currency in the account is being held for future use in the business, or conversely whether surplus funds have been withdrawn from the business and invested,
  • whether the funds in the account derive from a capital receipt, or are intended to finance capital expenditure,

in order to decide whether or not the account forms part of the circulating capital of the trade.

A trader may hold short-term notes or commercial paper, denominated in a foreign currency, as an integral part of trading operations. Gains or losses on such short-term assets can be regarded as being on trading account.

Where interest on a foreign currency investment is accepted as having the character of a trade receipt (see BIM40805), exchange differences should also be regarded as trade receipts or deductions. Exchange differences will not normally be within the charge on trade profits if the investment does not meet the criteria in BIM40805.

If exchange differences on assets are not on trading account, you will need to consider whether such differences give rise to chargeable gains or allowable losses when the assets are disposed of. Guidance on the CG treatment of foreign currency, including foreign currency bank accounts, is at CG78300 onwards. Debts and securities generally are dealt with at CG53400 onwards.