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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Derivative contracts: hedging: electing into regulations 7, 8 and 9

This guidance applies to periods of account starting on or after 1 January 2015.  

Electing into regulations 7, 8 and 9: regulation 6A

Elections, under regulation 6A, must be made in writing to HMRC. The election must be clear that it is applying to all of regulations 7, 8 and 9, or alternatively which of these regulations the company is electing into.

Time limits: new adopters

Time limits are covered by regulation 6A(2) and (3).

If the company is a new adopter (i.e. is adopting fair value accounting for the first time on or after 1 January 2015 in relation to a relevant derivative contract) they will have an extended period to make the election. The election will need to be made by the later of:

* Six months from the start of the first relevant period;
* Six months from entering into the first relevant derivative contract; and
* 12 months from the end of this period for ‘non-large’ companies (a company is deemed large if it is a qualifying company under Senior Accounting Officer rules in Schedule 46 of Finance Act 2009).

Companies will then be subject to an initial lock-in period through to two years from the end of the first relevant period (typically three years in total).

If the company does not make an election by this deadline, it will only be possible for a company to make an election at a later date for contracts entered into on or after the date specified in the election. This cannot be earlier than two years after the end of the company’s first accounting period in which it first began to account for derivatives falling within regulations 7, 8 or 9 using a fair value basis of accounting.

Time limits: subsequent elections

Once the lock-in period has concluded the company will be able to make, amend or revoke an election at any time on a prospective basis. In other words, this will have effect for derivative contracts entered into from the date specified in the election or notice. This must be later than the date the election or notice is made.

For companies that had applied fair value accounting in respect of relevant contracts before 2015, the lock-in period does not apply. These companies can revise their election position on a prospective basis at any time from the start of the first period of account commencing on or after 1 January 2015.

Revoking elections

Revocations are covered by regulation 6A(4) and must be made in writing to HMRC.

For elections made by new adopters the revocation must be made before the later of:

* Six months after start of first relevant period; 
* Six months after the company enters into the relevant derivative contract; and
* 12 months from the end of the first relevant period for ‘non-large’ companies (see above).

In any other case the revocation can be made before or after the election has effect. In the case of a new adopter this cannot be before two years after the end of the first relevant period (typically three years in total).