CFM51005 - Derivative contracts: the matters and computational rules: changes made by F(2)A15

CTA09/S594-610 as amended by F(2)A15

This guidance relates to company periods of account beginning on or after 1 January 2016

Changes to the derivative contracts provisions in F(2)A 2015

A significant change was made to the structure of the core operative provisions of CTA09/PT7 by F(2)A15. These changes follow the same pattern as for loan relationships, see CFM33005. The amended provisions apply for company accounting periods beginning on or after 1 January 2016,

In essence, the former CTA09/S595 was split into two sections.

New S594A sets out the subject matter of the provision, the “matters in respect of which amounts are to be brought into account”. For guidance on these matters see CFM51032.

Then, S307 deals with the normal method to be applied in determining the amounts to be brought into account. These are the amounts that are recognised in determining the company’s profit or loss for a period, in accordance with generally accepted accounting practice. For guidance on what is meant by this see CFM51034 .)

Other provisions deal with detail and circumstances in which the normal approach might be overridden.

Previously S595, as it then stood dealt with both issues and S3595(3) made reference to the debits and credits that fairly represent what are now referred to as the matters. This “fairly represents” concept has become obsolete, under the new approach.

How the key operative provisions are organised, after the F(2)A15 changes

S594 sets out clearly how the provisions of CTA09/PT7/CH3, ‘the credits and debits to be brought into account: general’ are organised.

  • S594A sets out the matters in respect of which amounts are to be brought into account - see CFM51032
  • S595 sets out the general rule that generally accepted accounting practice (GAAP) is to be applied in determining the amounts (debits and credits) to be brought into account. These are amounts taken into account in determining a company’s “profit or loss” - CFM51034
  • S596 defines a “related transaction” in respect of a derivative contract.
  • S597 to 599 explain what is meant by amounts brought into account in determining a company’s profit or loss.
  • S600 to 603 deal with circumstances where fair value accounting must be used to determine the amounts brought into account for tax, irrespective of the actual accounting treatment applied.
  • S604 and 604A deal with two circumstances where GAAP is not to be followed. In particular:
  • S604 deals with cases where amounts recognised in determining the carrying value of an asset or liability are nonetheless taken into account for tax - CFM33160.
  • S604A deals with exceptional cases where amounts recognised in OCI (other comprehensive income) are nonetheless to be taken into account - CFM33PPP
  • Then, reverting to cases where GAAP generally is followed, S606 provides that exchange differences are to be brought into account (CFM…)
  • S607 deals with expenses incurred before derivative contracts come into existence and abortive expenditure - CFM51NNN.
  • S607A to 607C deal with some circumstances where amounts may be brought into account even if a company is not party to a derivative or has ceased to be so CFM51MMM
  • S610 and 610 provide for deemed assignments in cases where a company or operations move outside the UK - CFM33300.