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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Derivative contracts: relevant contracts: contracts for differences

Definition of ‘contract for differences’

The term contract for differences (often abbreviated to CFD) is defined in CTA09/S582 as a contract the purpose or pretended purpose of which is to make a profit or avoid a loss by reference to fluctuations in

  • the value or price of property referred to in the contract, or
  • an index or other factor designated in the contract.

This definition is modelled on that in the Financial Services and Markets Act 2000 - see CFM50210.

Swaps will fall within this definition of contracts for differences, as will cash-settled futures and options. See examples at CFM50390.

The term ‘index or other factor’ in the definition of a CFD is very wide (CTA09/S582(3)). Any variation in any matter, to which a numerical value can be attributed, can form the basis of an index. The index does not have to be a pre-existing index, such as the FTSE 100 index in example 2 (CFM50390). It can be created specifically for the purposes of the contract.

A financial spread bet, if entered into by a company, will also be a contract for differences. The essence of a spread bet is that the punter wagers on either upward or downward movement in a particular index or the price of a particular subject matter. It would be unusual for a company to place such a bet - most companies are likely to be prohibited by their Memorandum and Articles of Association from out-and-out gambling - but if it does so, the fact that the contract may represent a wager does not of itself mean that Part 7 CTA09 does not apply.