CFM57040 - Derivative contracts: hedging: Disregard Regulations overview
Overview of the Disregard Regulations
The Disregard Regulations have effect for periods of account beginning on or after 1 January 2005. They cover the following circumstances:
A company uses a liability (regulation 3) or a derivative contract (regulation 4) to hedge its holding of shares, ships or aircraft. Regulations 4A, 4B, 4C and 5 are supplementary to these. This section of the guidance does not cover regulations 3 to 5, see CFM62010+
Either a forecast transaction or firm commitment is hedged by a currency contract (regulation 7), a commodity / debt contract (regulation 8) or an asset, liability, receipt or expense is hedged by an interest rate contract (regulation 9). Guidance is at CFM57080+ for regulations 7 and 8 and at CFM57290+ for regulation 9.
If a company chooses not to elect into regulations 7, 8 and 9 (or has elected out under the previous rules), then the tax treatment will simply look at the amounts recognised in profit or loss.
Regulation 10 sets out how fair value profits or losses that are disregarded under regulations 7 or 8 are brought back into account. Guidance is at CFM57210+.
Regulation 7A applies to derivative contracts hedging anticipated or future proceeds from certain issues of shares.
Regulations 11 and 12 are not concerned with hedging, but with transitional provisions relating to convertible and asset-linked securities.
Provisions for elections are contained in regulations 6 and 6A. The election rules were substantially revised in 2014 (see CFM57041). The effect of elections on transfers within groups is covered by regulation 6B (CFM57360+).
Regulation 2 contains various definitions.