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HMRC internal manual

Corporate Finance Manual

Derivative contracts: introduction: how profits and losses are charged

Bringing credits or debits into account

The basic rule is that all profits from a company’s derivative contracts are charged as income (CTA09/S571). Traditional distinctions between ‘capital’ and ‘revenue’ are irrelevant.

There are, however, exceptions to this general rule where derivatives have shares or property as their subject matter. In some cases, profits from such derivatives are brought into account as chargeable gains. There is detailed guidance at CFM55000 onwards.

Bringing amounts into account

Except for the minority of cases where chargeable gains treatment applies, profits (‘credits’) and losses (‘debits’) on derivative contracts are brought into account in exactly the same way as credits and debits on loan relationships (see CFM30160). Where a company is party to a derivative contract for the purposes of a trade it carries on, the credits and debits are treated respectively as trading receipts and trading expenses. In other cases, they are treated as non-trading loan relationship credits or debits and form part of the company’s non-trading profits or deficit from its loan relationships for the accounting period.

The distinction between trading and non-trading derivative contracts is covered in more detail at CFM51030.