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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Old rules: forex and accounts drawn up in a foreign currency: pre 2005: accounts wholly in a foreign currency: computing the return figures

Computing the taxable profit from foreign currency accounts

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

The procedure is set out in FA93/S93(4). Compute the profits and losses (including any capital allowances) of the business for the period in the currency of the accounts (or, in the case of a UK branch of a non-resident company, the currency of the return of accounts).

This means that where the company carries on a trade, the starting point for the Case I computation is the profit shown in the foreign currency. Adjustments are then made in accordance with the rules of Case I, in currency terms. For example, the currency amount of any entertaining expenditure is added back. Capital allowances are also computed in currency terms - see CFM86240.

Exchange gains and losses will only arise where the company has monetary assets and liabilities denominated in a currency which is not the reporting currency - this may, of course, be sterling.

Other income amounts, such as non-trading loan relationship credits, Schedule A or Case V profits, or Case VI profits from intangible fixed assets, are similarly calculated in currency terms.

Staying in this currency, adjust these figures of profit to take into account any brought forward figures for

  • management expenses
  • losses
  • non-trading loan relationship deficits.

Compute the sterling equivalent so far as it is needed for the return.

This will usually mean that all profits are converted into sterling. However, not all losses will be converted - only those that can be used to give relief. For example, the company may surrender trading losses to another group company which accounts in sterling. The company should convert just enough of the loss to cover the profit. See the example at CFM86210.

If a company claims group relief and the losses surrendered to it include both foreign currency and sterling losses, HMRC staff should be willing to agree any reasonable allocation of the losses to the claim.

Any unused balances are carried forward in the relevant currency.