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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Other tax rules on corporate finance: securitisation: periods beginning on or after 1 January 2005: the interim regime: continuation after 2008: transitional rules

The Securitisation Companies (Application of Section 83(1) of the Finance Act 2005: Accounting Standards) Regulations 2007: transitional rules

A company that has been within FA05/S83 and elects out of the continuation of the use of ‘old UK GAAP’ for tax purposes, will henceforth use its IAS or ‘new UK GAAP’ accounts as the basis for its tax computation. If such a company had not been within section 83 it would have been subject to the Change of Accounting Practice Regulations 2004 (CFM76000) which apply to bring amounts into account which arise as a result of the move to IAS or new UK GAAP.

Regulation 3 of the continuation regulations ensures that a company that elects out of the section 83 regime must bring into account the same adjustments that would have applied had section 83 not applied to it in the first place. The Change of Accounting Practice Regulations require these adjustments to be spread over 10 years from the later of 2006 or the year in which the accounting change takes place and Regulation 3 requires this spreading to take place from the period in which the company elects out and thus to which IAS or new UK GAAP applies for tax purposes.

Regulation 3 allows for a ‘just and reasonable’ approach, to ensure that amounts are not taxed or relieved twice.

Example

A company with a 31 December year end, and to which section 83, applies holds a derivative contract which is brought onto the balance sheet at a value of 100 at 1 January 2005. In APE 31 December 2007, the contract is revalued at 80. The company elects out of section 83 with effect from its accounting period ending 31 December 2008.

If section 83 had not applied to it, the company would have spread the credit of 100 under the Change of Accounting Practice Regulations over 10 years from APE 31 December 2006. Instead it will spread this over 10 years from APE 31 December 2008. However, it would also have had a debit of 20, allowable for tax purposes in APE 2007. A ‘fair and reasonable’ adjustment is that only the net figure of 80 should be spread over the 10 years from APE 2008 onwards.

There may be a number of adjustments made between the time when the company first became subject to IAS or new UK GAAP accounts, and the date on which it first uses these accounts as the basis for its tax computations as a result of electing out of the extension of FA05/S83. Any reasonable approach may be used, consistent with ensuring that the spreading rules under the Change of Accounting Practice Regulations begins in the first period for which the company has elected out, and which ensures that no adjustments are taxed or relieved twice.