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HMRC internal manual

Corporate Finance Manual

Old rules: derivative contracts: qualified exclusions: operation of Para 7

Overview of how Para 7 operated

This guidance applies to periods of account beginning before 1 January 2005, or beginning after that date and ending before 16 March 2005

Para 7 provided that where a relevant contract (a future, option or contract for differences),

  • either by itself or together with one or more other relevant contracts or loan relationships within sections 92 or 93 FA 1996, and
  • was designed to secure that the relevant amount payable under the contract did not fall below the guaranteed amount,

the relevant contract was treated as a derivative contract for the purposes of FA02/SCH26. Profits and gains from the contract were brought into account using an authorised mark to market method - Para 21(1)(b).

For accounting periods beginning on or after 1 January 2005, the reference to loan relationships within sections 92 or 93 was replaced by reference to one or more loan relationship assets to which FA96/S94A applied, and which represented the rights and liabilities of a host contract. Like Para 6, however, Para 7 was repealed for periods of account beginning on or after 1 January 2005 and ending on or after 16 March 2005.

The main target of Para 7 was prepaid equity derivatives with a floor.