HMRC internal manual

Corporate Finance Manual

CFM64470 - Accounts drawn up in a foreign currency: FA 2009: transitional rules: carried forward losses

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Transitional rules: carried forward losses

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

There are transitional rules that apply when losses that originate in an accounting period before these new rules apply are carried forward into a period after these new rules apply.

Where such losses originated in an accounting period prior to the application of these new rules, they will have been translated from the currency in which they were computed into sterling losses. They will then be carried forward in sterling.

Transitional rules are therefore required in order to retranslate the losses back into the currency in which they originated. This conversion would take place at the spot rate on the first day of the first accounting period to which these new rules apply.

This translation requires three steps:

  1. The loss is translated into sterling at the ‘appropriate exchange rate’ (CFM64340) for the accounting period in which the loss arose.
  2. The loss from Step 1 is translated into the currency in which it originated at the spot rate of exchange on the first day that these new rules apply (i.e. for most companies, the first accounting period beginning on or after 29 December 2007).
  3. Translate the loss into sterling in the accounting period in which it is offset in accordance with the normal rules for offsetting carry forward losses.