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HMRC internal manual

Corporate Finance Manual

Old rules: derivative contracts: transition to FA02 SCH26: contracts with post-cessation profits or losses

Contracts with post-cessation profits or losses

A company may have disposed of a derivative contract before 1 October 2002, but the correct accounting treatment is to spread forward gains and losses from such a contract into accounting periods where the FA 2002 rules now apply.

FA02/SCH26/PARA53 allows a company to be taxed on, or have relief for, profits or losses that appear in its accounts even though it is no longer a party to the contract in the period in question.

FA02/SCH28/PARA2 applies where a company

  • had a contract which was a qualifying contract under the FA 1994 rules, and
  • ceased to be a party to the contract before its commencement day (usually the first day of the first accounting period beginning on or after 1 October 2002), but
  • were the company still party to the contract on its commencement day, the contract would be a derivative contract within Sch 26.

In these circumstances, a company cannot claim relief under FA02/SCH26/PARA53 for losses or expenses that appear in its accounts for periods beginning after 1 October 2002 if the same amounts have already been relieved under the FA 1994 provisions. Conversely, it cannot be taxed again on any amounts already brought into account under FA 1994.