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HMRC internal manual

Corporate Finance Manual

Foreign exchange: matching under SSAP 20: mandatory matching for tax purposes

Matching under primary legislation

Matching is mandatory for accounting periods starting on or after 1 October 2002.

CTA09/S328(1) puts it beyond doubt that exchange gains and losses are within the loan relationship regime. Subsection (3), however, excludes the immediate bringing into account of exchange gains and losses in certain cases. It will apply where:

  • All or part of an exchange gain or loss on a liability insofar as it has been taken to reserves and matched in accordance with GAAP with an exchange loss or gain on an asset.
  • Assets where a loan is treated as ‘permanent as equity’. It will still be a loan relationship. The exchange gains and losses on the asset in this case are excluded by CTA09/S328(3)(a). This ensures that companies are not taxed on unrealised gains on long-term loan finance to subsidiaries, where accounting practice would not take such gains to the profit and loss account. It does not matter for this purpose whether or not the long-term loan is matched by a liability or derivative contract.
  • Exchange gains and losses taken to reserves using the closing rate/net investment method when consolidating the results of a branch or subsidiary. Although taken to reserves, these exchange gains and losses have nothing to do with the cover method of accounting.

Exchange gains and losses on derivative contracts are similarly excluded by CTA09/S606(3) if they are taken to reserves and set-off by or against an exchange gain or loss on an asset. After 22 April 2009, exchange gains or losses for this purpose must be computed with respect to spot rates of exchange - see CFM62250. 

Exchange gains and losses on shares are outside the regime because shares are not loan relationships. So there is no need for a specific exclusion for these assets.

Trade debts

SSAP 20 permits deferred trading balances to be treated as an investment in a foreign operation (CFM62060), although this treatment is uncommon in practice. Since exchange gains or losses on money debts are brought within the loan relationships rules by CTA09/S481(3)(b), they will be disregarded if taken to reserves, in the same way as exchange differences on a creditor loan relationship.


If matched shares are used in a repo transaction but nevertheless are recognised as an asset on the balance sheet in accordance with UK GAAP, the matching remains effective for tax purposes. See CFM46000 for more on repos.