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HMRC internal manual

Corporate Finance Manual

Derivative contracts: bringing amounts into account: how amounts are taxed

Credits and debits brought into account as income

Credits and debits from derivative contracts are in most cases brought into account as income, in the same way as loan relationship credits and debits. In a minority of cases, however, profits are brought into account as chargeable gains. This applies to certain property derivatives and derivatives embedded into certain convertible or asset-linked securities. Guidance is at CFM55000 to CFM55400 - this chapter does not deal with ‘chargeable gains treatment’.

CTA09/S573 and CTA09/S574 are similar to the provisions for, respectively, trading and non-trading loan relationships credits and debits. The debits and credits (including exchange gains and losses) from trading derivative contracts are treated as receipts and expenses of the trade and brought into account under Part 3 of CTA09.

Debits and credits from derivative contracts not held for the purposes of a trade are aggregated with the loan relationship non-trading credits and debits. This will give a single excess of credits over debits, which is then charged to tax under CTA09/S299, or a single excess of debits over credits treated as a non-trading deficit - see CFM32010 onwards.

CTA09/S573(4) provides that an amount which is deductible (for tax purposes) as an expense of a company’s trade by virtue of being a trading debit cannot be disallowed by CTA09/S53 as capital or by the ‘wholly and exclusively’ rule in CTA09/S54. This reinforces the rule in CTA09/S699 that gives priority to Part 7 over all other tax provisions dealing with how amounts relating to derivative contracts are brought into account.