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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: example

More than one non-sterling currency: example

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

Mannwel BV is a Netherlands bank with a branch in the UK. The branch keeps its financial records in euros. However, it makes loans to customers in sterling, US dollars and Swiss francs (as well as euros), and transacts other business with customers in these currencies. It accounts for its sterling, US dollar and Swiss franc ‘books’ as separate parts of its business. It incorporates the results of these operations into the financial statements of the UK branch using the closing rate/net investment method. The profit and loss account of each part business is translated at an average rate for the year.

The company’s accounting date is 31 December. The UK branch is preparing its CT return for the year ended 31 December 2004.

In the year ended 31 December 2003, the UK branch traded at a loss, and there are Case I losses of €500,000 brought forward.

In the year ended 31 December 2004, the separate trading books and the main branch business results have the items of income shown in the following table. Average exchange rates for 2004 are also shown.

Business or part business Taxable income (loss) Average exchange rate
Main (euro) business     
Case I (before CAs)    

Capital allowances

Non-trading loan relationship debits €1,200,000

(€ 800,000)

(€2,000,000) €1 = £0.600
  US dollar part business
  Case I
NT LR credits $3,000,000
$50,000  $1 = €1.100    
   Swiss franc part business    
  Case I (SFr 50,000); SFr 1 = €0.660

Step 1

Translate US dollar and Swiss franc branch profits and losses into euros, using the exchange rate used in the accounts - FA93/S93A(4). The sterling branch profits are not translated into euros - FA93/S93A does not apply here, because the branch financial statements in point are not prepared in a currency other than sterling.

Profits mean income items but not chargeable gains. Losses includes such items as Case I losses, loan relationship debits and management expenses, but not CG losses (FA93/S93A(9)).

Translation into euros gives:

US dollar part business Case I, €3,300,000; NT LR credits €55,000
Swiss franc part business Case I, (€33,000)

Step 2

Apply the rules in FA93/S93(4). Compute profits and losses in euros, and then translate them into sterling, using the rate that would be appropriate under GAAP for translating the euro accounts into sterling.

The euro computation is therefore:

Case I - main business 1,200,000  
US dollar business 3,300,000  
SFr business ( 33,000) 4,467,000
Less capital allowances   ( 800,000)
Less losses b/f   ( 500,000)
Net case I   3,167,000
NT LR credits   55,000
NT LR debits   (2,000,000)
Net debits   (1,945,000)

Translated at the average rate for the year (€1 = £0.600), this gives:

Case I = £1,900,200

NT LR debits = £1,167,000

Step 3

Compute the sterling profit to go into the CT600 return. The profits of the sterling branch, and any chargeable gains, are added at this stage:

  £   £
Case I - from euro computation 1,900,200    
Sterling branch 750,000   2,650,200
NT LR debits (1,167,000)    
NT LR credits (from sterling branch) 100,000   (1,067,000)
Chargeable gains (say)     217,000
Profits chargeable to CT     1,800,200