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HMRC internal manual

Corporate Finance Manual

Accounts drawn up in a foreign currency: FA 2009: carrying forward non-sterling losses: example

Example of the carry forward of non-sterling losses

This guidance applies to accounting periods beginning on or after 29 December 2007

A company has a Euro functional currency. Its results are as follows:

Y/e 31 December 2008: trading Loss - €50m

Y/e 31 December 2009: trading Profit - €30m

During both accounting periods, the company’s results relate to numerous transactions and it is considered that the ‘appropriate exchange rate’ should be the average exchange rate for the accounting period. The relevant average £/€ exchange rates are:

Y/e 31 December 2008 - 1:1.4

Y/e 31 December 2009 - 1:1.2

In 2008, there is a trading loss and there is no need to translate that loss into sterling for tax purposes in that year. The loss will not be translated into sterling until it is offset against profits in a different accounting period.

In 2009, the profit of €30m will need to be translated into sterling. In the absence of any losses this would give a sterling profit of £25m (€30m @ 1:1.2). The trading loss carried forward will be translated into sterling at the same exchange rate as the profit that it is offsetting, i.e. 1:1.2. As this is the same translation rate as the profit, this would mean that €30m of loss carried forward is required to offset the €30m profit.

The result would be the same, irrespective of the exchange rate in 2009. In effect, the losses are ‘held’ and offset in their currency of origination.

€20m of trading loss is then available for carry forward against future profits. This loss will not be translated into sterling until it is utilised in a different accounting period.