Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
, see all updates

Foreign exchange: matching: bringing amounts back into account: computing the 'net gain' or 'net loss'

Regulation 5: the quantum of gain or loss brought back into account

Regulation 5(2), SI2002/1970 sets out how to calculate the net gain or loss that is brought into account, whether as a chargeable gain or loss (on share disposals either before or after 6 April 2010), or as a loan relationships credit or debit.

You find the aggregate of the amounts representing exchange gains or losses accrued in relation to liabilities (borrowings or derivatives) matched with the asset, during the period that the company held the asset.

You can find this aggregate amount in any manner that is just and reasonable. The only restriction is that the just and reasonable method must have regard to the way in which the aggregate has been found in any earlier accounting period, and also to the effect of disposals of loan relationship assets in either the accounting period in question or earlier accounting periods. Neither the company nor HMRC staff should seek to chop and change the just and reasonable method used to calculate this aggregate, just because a particular method, when used on successive disposals, gives a tax result which is either more or less favourable.

‘Matched with the asset disposed of’

The exchange gains and losses entering into the computation of the net gain or net loss must be those relating to liabilities ‘matched with the asset disposed of during the period in which the asset was held by the company disposing of it’. If a borrowing, or a currency contract, is only partially matched with the asset concerned, it is only the exchange gains or losses relating to the matched portion that are brought back into account.

Regulation 7(4), (5) and (5A) set out what is meant by a liability, or an obligation under a currency contract, being ‘matched with’ a particular asset.

  • For periods beginning before 1 October 2002, a loan or currency contract is matched with an asset to the extent that is matched under regulation 10 of the Exchange Gains and Losses (Alternative Method of Calculation of Gain or Loss) Regulations 1994.
  • For accounting periods beginning on or after 1 October 2002 but before 1 January 2005, a loan or currency contract is matched with an asset if, and to the extent that, exchange differences on the hedging instrument are taken to reserves and offset against exchange differences on the asset.
  • For periods beginning on or after 1 January 2005, a loan or currency contract is matched with an asset if, and to the extent that, exchange differences are offset in reserves as above; it is also matched if, and to the extent that, it is treated as matched under regulation 3 or 4 of the Disregard Regulations.

Further guidance on how you identify which liability is matched to which asset is given at CFM62360 - 62380.

‘Held by the company disposing of it’

The gains or losses brought back into account must, in general, have accrued to the company that disposes of the asset. But, where there has been one or more previous no gain/no loss disposals, regulation 7(3) broadens this to include any predecessor company that has previously held the asset (see CFM62320).