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HMRC internal manual

Corporate Finance Manual

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Old rules: forex and accounts drawn up in a foreign currency: matching: transition from FA 1993 regime: amounts deferred under Reg 8

FA 1993 forex: transitional rules: amounts deferred under Regulation 8

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

Reg 8 deferred the bringing into account of exchange gains or losses on assets disposed of in no gain/no loss disposals. It applied where a company acquired a matched asset and no gain or loss was brought into account on the vendor company because of Sections 139, 140A, 171, 215 or 216. The gain or loss was calculated and then deferred until the first subsequent disposal that was not a no gain/ no loss disposal. The deferred amount would be brought into account as a capital gain or loss of the purchasing company at that time.

Some companies will still have these deferred amounts under Reg 8 if the first disposal other than a no gain/no loss disposal did not taken place before the end of the last FOREX accounting period. The deferred amount is brought into account, as under the 1994 Regulations, on the first subsequent disposal that is not a no gain/no loss disposal. A transitional issue arises if the subsequent disposal has not taken place by the first day of the accounting period to begin on or after 1 October 2002.

Reg 3, SI2002/1970 prescribes when amounts should be brought into account under Reg 4(1) of the new regulations. It includes, at Reg 3(3)(b), the disposal of an asset on which there has been

  • a deferred gain or loss under Reg 8 of the 1994 Regulations, and
  • an amount has not been brought into account subsequently.

The 2002 Regulations do not specify that the deferred amount is brought into account as such. Instead the company is required to calculate the aggregate of all the exchange gains and losses on liabilities to the extent that those liabilities were matched with the asset now disposed of. Reg 7(3) ensures that in arriving at the aggregate, the company must look back through any previous no gain/no loss disposal to which Reg 8 of the 1994 Regulations applied.

The 2002 Regulations do not explicitly bring the deferred amount into account but the aggregate can be calculated by adding the following:

  • the deferred gain or loss under Reg 8 of the 1994 Regulations
  • the exchange gain or loss calculated, but not brought into account, on the deemed disposal under Reg 7(1A) of the 1994 Regulations, and

the exchange gains and losses taken to reserves and matched against the asset disposed of in accounting periods beginning on or after 1 October 2002.

The 2002 Regulations were amended by SI2010/809, for asset disposals on or after 6 April 2010. The changes do not, however, apply to gains or losses deferred under Reg 8 of the 1994 Regulations. This means that, on a disposal of matched shares, such amounts (together with amounts held over under Reg 7(1A) of the 1994 Regulations - see CFM86320) will still be brought into account as a ‘free-standing’ chargeable gain or allowable loss, rather than as an adjustment to the disposal consideration for the shares.