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HMRC internal manual

Corporate Finance Manual

Derivative contracts: hedging: regulation 10: ignoring recycling

This guidance applies to periods of account starting on or after 1 January 2015 where the company has elected for regulation 7 or 8 to apply. 

Ignoring recycling

In a case where gains and losses on a hedging contract have been taken to other comprehensive income (OCI), IAS 39 and FRS 26 under Old UK GAAP require that when the hedged item is recognised, the cumulative gains or loss is ‘recycled’ through to the profit and loss account - see CFM27160 on cash flow hedges.

Regulation 10(10) and (11) prevents this movement from being recognised for tax purposes. In most cases it would not matter if it was recognised because there is an equal and opposite credit and debit brought into account in two recognised statements for the purposes of CTA09/S597. This is illustrated in the example at CFM57090. However, it also puts beyond doubt that nothing is brought into account when amounts are taken from equity directly to an asset or liability account (a ‘basis adjustment’) - see example 1 of CFM57220.