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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Derivative contracts: relevant contracts: futures

Definition of ‘future’

CTA09/S581(1) defines a future as a contract for the sale of property under which delivery is to be made

  • at a future date, which is agreed when the contract is made, and
  • at a price which is also agreed when the contract is made.

There are specific provisions under which a price may be taken to be agreed when the contract is made even if the contract does not unequivocally say that £X will be paid.

Some contracts, such as exchange-traded commodity futures, or gilt or US Treasury bond futures, provide for the delivery of alternatives to the property actually specified in the contract. Indeed, in some cases, such as Treasury bond futures, the property specified in the contract may not exist in reality. There may be provision for the price to be varied accordingly. Under CTA09/S581(2)(b), the price is nonetheless taken as agreed when the contract is made.

You may also see futures where the price is dependent on a market value at a specified time and place. For example, a company might enter into a forward currency contract on 2 January to buy dollars, for delivery on 31 March, at the rate at which those dollars could be purchased in the London FOREX markets on 3 January. S581(2)(a) also provides that in such cases the price is taken as agreed when the contract is made.

The term ‘future’ in Part 7 CTA09 is limited to contracts that actually provide for property to be delivered. As with options (see CFM50340), CTA09/S581(3) provides that a contract described as a future, which can only be cash settled, is a contract for differences for the purposes of Part 7.

There are examples at CFM50370.

Even with the restriction imposed by CTA09/S581(3), the definition of a future is very wide. It will catch any purchase contract where the price is agreed at the time that the contract is signed, but delivery is to be made at a later date. For example, if a company signs a contract under which it will pay £500,000 for plant and machinery to be delivered in six months’ time, this would be a relevant contract because it falls within the definition of a future. But most commercial contracts of this nature are not derivative contracts because they do not pass the accounting test in CTA09/S579 - see CFM50210 onwards.