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HMRC internal manual

Corporate Finance Manual

Old rules: forex and accounts drawn up in a foreign currency: pre 2005: accounts wholly or partly in a foreign currency

Basic rules

This guidance applies for accounting periods between 1 October 2002 and 1 January 2005

FA93/S92 states the basic rule that for CT purposes, profits and losses must be computed and expressed in sterling. However, this is subject to FA93/S93 and FA93/S93A.

Accounts in sterling but financial statements for part of the business are in foreign currency

FA93/S93A applies where:

  • the UK company accounts in sterling but has to include profits from a branch or part of the business that prepares financial statements in a foreign currency, or
  • the UK branch of a non-resident company draws up its branch statements in sterling, but has a part of its business that maintains records and prepares financial statements in a non-sterling currency.

There is a special definition of part of a business in FA93/S94A (8). It includes any collection of assets and liabilities, following the definition of foreign branch in SSAP 20.

Part of a business therefore goes wider than an overseas branch, or even a separate part of the business carried on in a particular location. For example, it allows a company that accounts for the revenues and expenses from an aircraft in a non-sterling currency, to treat the aircraft as a part business. It also applies to insurance companies operating in the London Market where the operative currency is the US dollar, even though the business is located in and carried on from London.

Accounts wholly in a foreign currency

The provisions in FA93/S93 determine how you get from profits and losses computed from non- sterling accounts to the sterling figures to be entered in the CT return.

Profits in this context means trading profits and income from other sources, for example Schedule A income and non-trading loan relationship credits, but not chargeable gains.

Losses means trading losses, management expenses and losses from other sources such as non-trading deficits from loan relationships, but not allowable losses within the meaning of TCGA 1992.

Profits and losses are computed in the currency of the accounts, and only translated into sterling as a final step.