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HMRC internal manual

Corporate Finance Manual

Derivative contracts: hedging: regulation 7 and transition

This guidance applies to periods of account starting on or after 1 January 2015 where the company has elected for regulation 7 to apply. 

Transitional adjustments and regulation 7

Where a company adopts IFRS, New UK GAAP, or FRS 26 under Old UK GAAP for the first time, transitional adjustments will arise where fair value accounting is first applied to its derivative contracts. If these transitional amounts (which may be profits or losses) appear in the company’s accounts as prior period adjustments, they would normally have been brought into account in the normal way under CTA09/S595(2). If the company restates its comparative figures, so that the amounts do not appear on the face of the accounts, they would nevertheless normally have been brought into account for tax by CTA09/S613 - see CFM52030.

All such transitional amounts, whether within S613 or taking the form of a prior period adjustment, are aggregated with other fair value profits and losses for the purposes of regulation 7, where that regulation applies. As a result, they are initially disregarded, but brought back into account under regulation 10 (CFM57210).

This treatment takes priority over deferral and spreading of the transitional adjustment under the Loan Relationships and Derivative Contracts (Change of Accounting Practice) Regulations 2004 - SI 2004/3271 (CFM76060).