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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Derivative contracts: tax avoidance: allowance of accumulated net losses: examples

Examples of how CTA09/S692 operates

Example 1

In AP1 there are credits in respect of a derivative contract of £1,000, which are not disregarded under S690(2).

In AP2 there are

  • debits in respect of the derivative contract of £5,000, and
  • exchange gains of £200.

All of the debits and credits are referable to unallowable purposes. There is a net loss of £4,800 (£5,000 - £200).

In AP2, £1,000 of the net loss is brought into account (as it matches the taxable credit in AP1). The remainder of the net loss (£3,800) is disregarded.

Example 2

In AP1 there are

  • debits in respect of the derivative contract of £5,000, and
  • exchange gains of £200.

All of the debits and credits are referable to unallowable purposes. There is a net loss of £4,800 (£5,000 - £200).

In AP2 there are credits in respect of a derivative contract of £1,000, which are not disregarded under S690(2).

£1,000 of the net loss brought forward is brought into account in AP2 (as it matches the accumulated credit of £1,000 in that accounting period). The remainder of the net loss (£3,800) is disregarded in both AP1 and AP2, but it may be matched with accumulated credits in AP3 or later.