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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Deemed loan relationships: money debts: extended definition includes foreign exchange differences

Exchange gains and losses: amounts treated as money debts

Exchange gains and losses on money debts are brought into account under CTA09/PT5/CH2.

CTA09/S483 further provides that the following are treated as money debts under the loan relationships rules:

  • any currency held by the company;
  • provisions for future liabilities as long as they relate to a trade, or a UK or overseas property business and would otherwise be allowable under those rules;
  • provisions for unearned premiums and unexpired risk reserves of insurance companies.

Example: exchange difference on trade debts

On 1 January Basker Ltd sells goods to an Italian firm for €15,000. At the time the goods are delivered €15,000 is worth £10,000. The customer pays the bill on 31 March when €15,000 is worth £10,750. The exchange gain of £750 is taxable as a loan relationship credit.

Example: exchange differences on provisions

Opit Ltd has an accounting period ending on 31 December each year. At 31 December the company identifies contingent liabilities based on guarantees provided to US customers. It includes in its accounts a US $ provision against possible future guarantee payments. The provision is translated into sterling for the accounts.

At each accounting date the provision is revalued in US $. It is then translated onto the balance sheet in sterling. There is no lending of money, and no money debt. Without CTA09/S483 the company could not include the exchange gain or loss that arises in the tax computation.