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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Foreign exchange: matching under the Disregard Regulations: bringing amounts back into account

Application of Bringing into Account Gains and Losses Regulations

CFM62270 onwards describes how the exchange gains and losses that are initially disregarded are brought back into account (and the circumstances in which they are never brought back into account) in periods beginning before 1 January 2005. The principles underlying this treatment remain unchanged, although some modifications were made to SI 2002/1970 (the Bringing into Account of Gains or Losses, or BAGL, Regulations) by SI 2004/3259, with effect for accounting periods beginning on or after 1 January 2005; and further modifications were made by SI 2010/809, applying from 6 April 2010.

The general rule in regulation 4 of the BAGL Regulations for bringing amounts into account (CFM62260) applies where

  • there is a disposal of an asset in an accounting period beginning on or after 1 January 2005, and
  • an exchange gain or loss on a matched liability or derivative contract, which was either taken to reserves and matched with an exchange difference on the asset (under SSAP 20 ‘offset accounting’) or was prescribed under regulation 3 or 4 of the Disregard Regulations. (In many cases where the asset was first matched in a period beginning before 1 January 2005, exchange differences will have been disregarded under both the ‘old’ and the ‘new’ rules, of course).

The operation of regulation 4 remains the same - on disposal of an asset consisting of shares, the aggregate of the previously disregarded exchange differences is brought into account as a chargeable gain or allowable loss. But this does not apply where the disposal of the shares is covered by substantial shareholding exemption (CFM62270). Where the asset is a ship or aircraft, amounts are brought back as loan relationships credits or debits. The rule in regulation 5 for computing the aggregate exchange gain or exchange loss (CFM62310) continues to apply.

While SI 2010/809 made a significant amendment to regulation 4 (see CFM62290), it remains the case that the way in which amounts are brought back into account is the same, regardless of whether they were disregarded under ‘SSAP 20 matching’ or under the Disregard Regulations.

Regulation 7, which explains - for the purposes of regulations 5 and 6 - what is meant by saying that a liability, or an obligation under a derivative contract, is matched with an asset, was expanded by SI 2004/3259. Thus the liability or obligation under the contract is fully (or partially) matched not only when all (or part) of the relevant exchange difference is taken to reserves, but also when it is regarded as wholly or partially matched under regulation 3 or 4 of the Disregard Regulations.

The provisions relating to no gain/no loss disposals of assets, and reorganisations of share capital, described at CFM62320 onwards, continue to operate in the same way.

Where a company has, under SSAP 20, taken exchange gains and losses on a creditor loan relationship - representing a long-term investment in a foreign operation - to reserves, regulation 13 (CFM62470) applies on a disposal of the loan relationship. The aggregate of exchange gains or losses that have been disregarded under CTA09/S328 (formerly FA96/S84A) is brought into account as a loan relationships credit or debit, whether these have arisen before or after 1 January 2005.