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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Foreign exchange: accounts drawn up in a foreign currency: the basic rule: profits are computed in sterling

Computation of profits in sterling

CTA10/S5(1) contains the basic rule that for CT purposes, profits must be computed and expressed in sterling. This is the default rule that applies to the majority of UK companies whose profits are measured by reference to sterling even though many transactions may be carried out in foreign currencies.

This basic rule applies both to periods beginning before 1 January 2005, and to those starting on or after that date.

Where accounts are prepared in a foreign currency, rules are needed to take the company out of CTA10/S5 and to bridge the gap between the figures appearing in the accounts and the sterling figures required in the return. For periods beginning on or after 1 January 2005, CTA10/S6, CTA10/S7 and CTA10/S8 apply in cases where the accounts of a company are drawn up in a currency other than sterling either because the company operates largely in another currency, the functional currency, or because it uses a presentation currency for accounts purposes.

CTA10/S5 refers to ‘the income and chargeable gains of a company for an accounting period’. This has a broad scope, including all items of chargeable profits and gains. The rules in sections CTA10/S6 to 8 which deal with situations where accounts are drawn up in a foreign currency, however, apply only to ‘profits or losses of the company for the period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes’.

CTA09/Part 16 Other items - principally chargeable gains - remain within the basic CTA10/S5, and so are computed in sterling. In periods beginning before 1 January 2005, the rules which applied where accounts were drawn up in a foreign currency worked slightly differently and there was an explicit exclusion for chargeable gains.

Completing the company return (CT600)

Whatever currency the company uses in its accounts, the CTSA return must always be completed in sterling. The CT600 notes tell the company how the entries in particular boxes should be computed.