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HMRC internal manual

Corporate Finance Manual

Foreign exchange: matching under the Disregard Regulations: relevant value

Relevant value: regulation 4A

Both regulations 3 and 4 restrict the tax matching of liabilities to the ‘unmatched carrying value’ of the asset.

Regulation 3(7) and 4(5) define ‘unmatched carrying value’ as the ‘relevant value’ of the asset to the extent that this asset has not already been matched under regulation 3 or 4.

Regulation 4A defines what ‘relevant value’ of the asset means. For periods of account beginning before 1 January 2008, the ‘relevant value’ will, in most situations, be the value shown in the accounts. The definition of ‘relevant value’ was, however, amended by SI 2007/3431, so that for periods of account beginning on or after 1 January 2008, a company may elect for ‘net asset value matching’. Guidance on this is at CFM62730.

Periods beginning before 1 January 2008

In general, the ‘relevant value’ of matched shares is the value that they are accorded in the accounts of the company - normally historic cost.

However, where a company first adopted International Accounting Standards or their UK equivalents in an account period beginning on or after 1 January 2005, and accounted for the asset on a historic cost basis (i.e. the original cost of the asset) under those standards, but had accounted for the asset in question on a net asset value basis (see below) under SSAP 20 in the period immediately before the adoption of IAS, the relevant value of that asset will be its net asset value.

Net asset value?

For some companies, the historic cost of the shares it holds in a subsidiary is far lower than the value of the underlying assets. In economic terms the company would want to hedge this higher value and some companies did in fact do this under SSAP 20. This is known as hedging on a net asset value basis.

Note this alternative basis will only apply to assets held before adoption of IAS that were accounted for on a net asset value basis under SSAP20 - it will not apply to assets acquired subsequent to IAS adoption.