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HMRC internal manual

Corporate Finance Manual

Other tax rules on corporate finance: change of accounting policy: introduction

Secondary legislation

The loan relationships and derivative contracts legislation allows for secondary legislation (Regulations and Orders) to be made to exclude certain amounts from being brought into account, or to bring amounts into account in a specified way or over a specified period. The powers to make secondary legislation are in CTA09/S310 and S319 for loan relationships and CTA09/S598 and S701 for derivative contracts.

Two main sets of Regulations have been made. These are:

  • the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004 (SI 2004/3256 as amended ) (referred to in this guidance as the Disregard Regulations);
  • the Loan Relationships and Derivative Contracts (Change of Accounting Practice) Regulations 2004 (SI 2004/3271 as amended).

The Disregard Regulations

Where companies adopt a new accounting policy, the Disregard Regulations retain for tax purposes the UK GAAP treatment prior to FRS 26 for certain assets, liabilities and contracts. The Disregard Regulations have effect for periods of account beginning on or after 1 January 2005 and apply for example where a company hedges shares, ships or aircraft in a foreign operation, or hedges using currency, commodity, debt or interest rate contracts. In certain circumstances, exchange gains and losses, or fair value changes are disregarded until the company ceases to be party to the contract or the asset or liability is disposed of.

CFM57000 has full details on the Disregard Regulations.

The Change of Accounting Practice Regulations

The second set of regulations made under the regulation-making powers are the COAP Regulations. These modify the normal change of basis rules described in CFM76010 by providing that certain amounts are:

  • deferred and brought in subsequently, or
  • never brought into account.

These are described at CFM76070 onwards in more detail. The COAP Regulations also deal with the amounts to be taxed in relation to ‘held to maturity’ (HTM) assets. See CFM33150 for details of this part of the Regulations.