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HMRC internal manual

Corporate Finance Manual

Old rules: overview

Earlier versions of the legislation on loan relationships and derivative contracts

The Corporate Finance Manual explains the current rules on loan relationships (CFM30000), derivative contracts (CFM50000) and forex (CFM60000), as they stand following the rewriting of the legislation in Parts 5 to 7 of the Corporation Tax Act 2009. CTA09 did not change the substance of the legislation as it existed prior to its rewriting and consolidation.

There have been a number of changes to the legislation since its original introduction, in particular as a consequence of the introduction of International Accounting Standards with effect from 1 January 2005. This section of the Corporate Finance Manual sets out some of the key differences from the current rules that applied in periods beginning between 1 October 2002 (when FA94 rules on financial instruments were replaced by the FA02 rules on derivative contracts and the FA93 forex rules were absorbed into the legislation on loan relationships and derivatives), and 31 December 2004.

The layout of the guidance in this section of the CFM

CFM80020 contains a quick guide to the loan relationships legislation in FA 1996, and CFM80030 contains a quick guide to the derivatives contracts legislation in FA 2002. These may need to be referred to in understanding the rules as they previously applied.

CFM80100 explains a key concept in the pre-2005 loan relationships rules - that of authorised accounting methods. This concept was abolished with effect for accounting periods beginning on or after 1 January 2005.

CFM81000+ explains the loan relationships connected party rules pre-2005. The previous rules on the treatment of bad debts between connected parties were closely related to the application of the authorised accounting methods. See CFM35000 for the current rules.

CFM82000+ explains the loan relationships rules on convertible and asset-linked securities, which were replaced, from 2005 onwards, by the rules on ‘hybrid’ securities (loan relationships host contracts with embedded derivatives - see CFM37600 for the current rules).

CFM83000+ explains features of the original FA 2002 derivatives contracts legislation which were amended with effect for accounting period beginning on or after 1 January 2005.

CFM86000+ explains features of the pre-2005 rules on foreign exchange and currency accounting.

Loan relationships, exchange differences and financial instruments pre 2002

Guidance pre 2002 used to be available in the Company Taxation Manual, these chapters have been removed. If you require access to the pre 2002 guidance an archive copy can be obtained from the editor of the Company Taxation Manual. Instructions on how to obtain an archive copy are at CTM50000. Archive copies are available for the following Company Taxation Manual chapters:

  • Loan relationships (CTM50000) for guidance on the loan relationships rules as they applied in accounting periods beginning before 1 October 2002.
  • the FA 1993 legislation on exchange differences and local currency accounting (CFM70000)
  • the FA 1994 legislation on financial instruments, the predecessor to the derivative contracts rules, (CFM70000).