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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: example of a taxable profit computation

Computing the return figures: example

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

Industries Ltd prepares its accounts in euros. Exchange differences will therefore be recognised in those accounts by reference to the euro rather than sterling. For this company, this is correct accounting practice in accordance with SSAP 20.

The company makes a Case I loss before capital allowances in APE 31/12/2004 of €113,250.

The capital allowances pool b/f at 31/12/2003 is €20,000, with additions of €7,000 in 2004.

Compute capital allowances in euros.

Pool b/f 20,000
Expenditure 7,000
Pool 27,000
CAs at 25% 6,750
Pool c/f 23,250

Total euro loss is therefore €120,000 (€113,250 + €6,750)

As the company did not make a profit, it need only translate the loss to the extent it is used in the year. Fellow group company Properties Ltd has made a profit of £50,000 in APE 31/12/2004. The group therefore decides to surrender part of the euro loss as group relief.

The company translates using the London closing exchange rate at 31/12/2004. Assuming the rate was 0.6107, then £50,000 = €81,873.

Properties Ltd receives group relief of £50,000.

Losses carried forward by Industries Ltd are €38,127. The carried forward amount shown on the CT return will be £23,284. See CFM86230.