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HMRC internal manual

Corporate Finance Manual

Old rules: forex and accounts drawn up in a foreign currency: pre 2005: part of business accounts in a foreign currency: more than one foreign currency

Foreign currency accounts using statements in a second currency

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

FA93/S93A(3) sets out a further two circumstances in which:

  • the exchange rate used to translate profits and losses of part of a business is applied to the net profit or loss of the part, and not to individual transactions, and
  • any exchange gains and losses taken to reserve are ignored for CT purposes.

The circumstances are where:

  • a UK company prepares accounts in a first non-sterling currency and includes profits and losses from a branch, or part of the business, in a second non-sterling currency, or
  • a UK branch of a non-resident company draws up branch financial statements in a first non-sterling currency, and includes profits and losses from a part of the UK branch business which accounts in a second non-sterling currency.

In such cases, calculate the CT profits or loss for each branch, or part of the business, arising in the second currency.

Translate the amounts in the second currency into the first currency, using the exchange rate used in the accounts. If no arm’s length rate is used in the accounts, use the London closing rate.

Next, work out the CT profit or loss of the company (or UK branch) as a whole, expressed in the first currency.

For each different second currency used, a company is treated as having a separate part of a separate business (FA93/S93A(7)), and the above steps are applied to them one by one.

Finally, translate the first currency into sterling for the company tax return.

There is an example at CFM86180.