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HMRC internal manual

Corporate Finance Manual

Old rules: loan relationships: authorised accounting methods: overview


This guidance applies to periods of account beginning before 1 January 2005 

Authorised accounting methods were an important feature of the pre 2005 loan relationship rules. The introduction of International Accounting Standards with effect from 1 January 2005, and in particular the impact of fair value accounting and the recognition of financial instruments, required major modifications to the loan relationships and derivative contracts rules. FA 2004 repealed the provisions relating to authorised accounting methods for periods of account starting on or after 1 January 2005 for loan relationships.

This section of the guidance sets out the old rules which apply only to periods of account beginning before 1 January 2005.

The FA96 legislation referred to throughout this section has now been replaced by CTA09.

In the old rules, the general requirement is that a company must, for the purposes of determining the credits and debits to be brought into account for corporation tax purposes, use one of two accounting methods: either accruals or mark to market, which conform to

  • generally accepted accounting practice, and
  • the specific requirements of the legislation for that particular method.

In general, the company will follow the method for each of its loan relationships that is actually used in its statutory accounts. There is more detailed guidance on accounting practice as it applied before 2005 at CFM22000 onwards. If the company’s method does not conform, it should make an adjustment in the computation to bring the credits and debits into line with the requirements of the legislation.

In some circumstances the legislation imposes a particular method, for example where the parties to the loan relationships are connected, see CFM81010. The method used in the accounts is then ignored, and the tax result computed by using the method imposed.