Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
Updated
, see all updates

Accounts drawn up in a foreign currency: FA 2009: change in operating currency: rules

Change in operating currency: rules

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

The basic rule, that losses originating in a non-sterling currency that are carried forward or back are translated into sterling at the same exchange rate as the profit that is being offset, does not work once a company changes its operating currency.

This rule means that, in effect, losses are carried forward or back in the currency in which they originated but how would you go about offsetting, say, US dollar losses against a Euro profit in a later accounting period?

The legislation deals with this by translating the loss, in whatever currency it originated in, into the operating currency of the company when the loss is offset.

Carry back losses

Where losses are carried back, the translation into the previous currency should take place at the spot rate on the last day of the last accounting period with the previous operating currency.

CFM64430 has an example of how a change in operating currency is dealt with when losses are carried back.

Carry forward losses

Where losses are carried forward, the translation into the new operating currency should take place at the spot rate on the first day of the first accounting period during which the new operating currency is used.

CFM64440has an example of how a change in operating currency is dealt with when losses are carried forward.

Conversion into non-sterling currencies

Where the operating currency during the period when the profit is offset by a loss is not sterling, the converted loss will then be translated into sterling at the same exchange rate as the profit that it is offsetting (as per the normal rules for offsetting brought forward or back losses).

Conversion into sterling

Where the operating currency during the period when the profit is offset by a loss is sterling, the converted loss will require no further translation (the loss is now in sterling and will be offset against sterling profits).