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HMRC internal manual

Corporate Finance Manual

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Old rules: derivative contracts: overview: FA 2002

Introduction of FA 2002 derivative contracts rules

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

FA2002/S83 brought in the regime for derivative contracts that has now been rewritten under CTA09/PT7. The rules apply in relation to accounting periods beginning on or after 1 October 2002.

The legislation was previously contained in three schedules to FA 2002. These can be summarised as follows.

Schedule 26 FA 2002 The main rules for derivative contracts were in Schedule 26. You will find an overview of the current rules under CTA09/PT7 at CFM50020.
   
Schedule 27 FA 2002  Schedule 27 made minor modifications to other parts of the Taxes Acts that were relevant to derivatives, to allow for the FA 2002 changes.
Schedule 28 FA 2002  Schedule 28 contained the transitional provisions for the derivative contracts regime. 

CFM85020 covers the circumstance in which the company shortens its accounting period to try to delay the effects of the new 2002 rules.

CFM85030 onwards tells you how to deal with cases where accounts for a period beginning on or after 1 October 2002 show profits or losses relating to contracts entered into during an earlier accounting period.

Substantial amendments to the 2002 provisions were made by FA 2004 and subsequent statutory instruments. These amendments, in general, have effect for accounting periods beginning on or after 1 January 2005. CFM83050 gives an overview.

This part of the Corporate Finance Manual contains guidance on statutory provisions that have been repealed or superseded as a result of these changes. It covers:

  • Property as an excluded subject matter - CFM83060 
  • Shares (and assets similar to shares) as an excluded subject matter - CFM83070 
  • Transitional rules for equity derivatives becoming derivative contracts - CFM83190 onwards
  • Circumstances in which share-based derivatives were not excluded - CFM83090 onwards
  • Application of authorised accounting methods and basic computational rules - CFM84000 onwards

Many of the rules that applied before 1 January 2005 have remained unaltered. If you are looking at an accounting period before 1 January 2005, and the topic you are interested in is not listed above, consult the main guidance.

Both the derivatives market and relevant accounting standards are subject to change, and the tax treatment of derivatives needs to be able to keep pace. For this reason, the legislation contains a number of regulation-making powers. FA02/SCH26/PARA13 (now CTA09/S701) contained a power to amend Part 2 of Sch 26, which dealt with the scope of the derivative contracts rules, by Treasury Order. Further powers were added by FA 2004 including an extension of FA02/SCH26/PARA13 to allow Part 9 (miscellaneous provisions) of Sch 26 to be amended. Statutory instruments made wholly or partly under these powers up to the end of 2005 are listed at CFM83040.