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HMRC internal manual

Corporate Finance Manual

Other tax rules on corporate finance: change of accounting policy: ‘post-cessation’ gains and losses

Change of accounting policy following cessation of loan relationship/derivative contract

CTA09/S331 and CTA09/S608 apply where a loan relationship (CFM33280) or derivative contract (CFM50820) has been brought to a premature termination. In such cases, profits and losses may be spread over the remaining term of the loan or contract. In these circumstances, amounts recognised in ‘post cessation’ periods are brought in for tax purposes as if the loan relationship or derivative contract still existed.

CTA09/S318 and CTA09/S615 treat the amount outstanding at the end of the period immediately before the change of accounting policy as the carrying value of the loan relationship or derivative contract. For the purposes of computing adjustments on a change of accounting policy, this is compared with the amounts in the opening accounts, and the difference is brought in as a debit or credit in the first period of the new accounting policy.

The amount outstanding is defined in CTA09/S318(5) and CTA09/S615(5) to mean the deferred income or loss in the balance sheet of the company, which has not so far been brought into account as a profit or loss under Part 5 or Part 7.