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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: where the presentation currency and the functional currency are different

Company accounts prepared using a presentation currency that is not the functional currency

A company may prepare its accounts in a presentation currency other than its functional currency where

  • its functional currency is sterling, or
  • its functional currency is a currency other than sterling.


This section applies where the functional currency is sterling but a presentation currency other than sterling is used. In this case, the tax rules override what is in the accounts, and profits and losses must be computed by reference to sterling. The company is required to calculate profits and losses, in accordance with generally accepted accounting practice, as if it had prepared accounts in sterling.


Tychpin Ltd prepares accounts in Euros because it is consolidated with an intermediate parent company which prepares accounts in Euros. However, the primary economic environment for Tychpin Ltd is the UK and sterling is its functional currency. Tychpin therefore identifies sterling as its functional currency in its accounts. CTA10/S6 applies and Tychpin must calculate its profit or loss by reference to sterling for UK tax purposes.

Suppose, for example, the accounting records of Tychpin Ltd show profits of £1,500,000, measured in its functional currency of sterling. These profits will include any exchange gains or losses that arise on Euro-denominated assets, liabilities or transactions. In preparing its accounts, it will translate that £1,500,000 profit into Euros (either at the spot rate applicable to each transaction, or at an average rate for the year where that provides a reasonable approximation). But its tax computations will need to start from the sterling profit of £1,500,000, and computational adjustments, capital allowances and so on will be computed in sterling terms.


This section applies where one currency other than sterling is the functional currency (as identified by the company in its accounts) and another currency is used to prepare the accounts.

The company must compute its CT profits or losses by reference to its functional currency. The profit or loss is then translated into sterling for tax purposes. For the rate to be used see CFM64170.

Changes in functional currency

CTA09/S328(2A) for loan relationships and CTA09/S606(2A) for derivative contracts provides that where an investment company changes its functional currency other than by a designated currency election (CFM64500), exchange gains and losses on the loan relationship or derivative contract are not brought into account where the exchange gain or loss arises as a result of a change in functional currency occurring in the period of account in which the gain or loss arises and the period of account ending in the 12 months preceding that period.

Exchange differences arising on translation

Where a company translates profits from its functional currency into its presentation currency, exchange differences will arise (and will normally be taken to reserves). These exchange differences are ignored in calculating the profit or loss that arises when the profit is computed as if the company had prepared accounts in its functional currency (CTA10/S6(2) or S7(2) as appropriate). The tax computations must be based on deemed functional currency accounts, which would not show any such exchange differences.