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HMRC internal manual

General Insurance Manual

Taxation of general insurance: annual accounting: currency accounting: APs beginning before 1 January 2005: general rules

GIM4130 explains the rules for accounting periods beginning on or after 1 January 2005.

The provisions in FA93/S92 to FA93/S94AB (FA93/S92 to FA93/S94 for periods beginning before 1 October 2002) determined how transactions denominated or expressed in a currency other than sterling were to be brought into account. General insurers’ accounting in this area, in common with other companies, is governed by SSAP 20 and the ABI SORP - it was paragraph 197 of the 2003 SORP, now paragraph 219 of 2005.

The general rules for UK companies with currency assets, liabilities, income and expenditure was that:

  • the items of income and expenditure were translated at exchange rates ruling on the date of the transaction - SSAP 20 paragraph 46, and
  • monetary assets and liabilities were translated at balance sheet dates as well as on acquisition and disposal, and any exchange differences were brought into account in the profit and loss account - SSAP 20 paragraph 48.

This treatment was followed for tax, by virtue of FA93/S92 as it then stood (tax accounting is in sterling) and FA93/S94AA (exchange rates and dates to be used). CFM10508 gives further details. Exchange gains and losses on monetary assets and liabilities came within the Forex legislation (Chapter 2 Part 2 FA 1993 for periods beginning before 1 October 1992), in the loan relationships legislation (Chapter 2 Part 4 FA 1996), and in the derivative contracts legislation (FA02/SCH26) for later periods.

Exchange differences on investment assets (including shares which are treated as monetary assets by general insurers) are covered at GIM5270.

Exchange differences on claims provisions, Unexpired Risks Provisions, Unearned Premiums Provisions and Deferred Acquisition Expenses are considered at GIM5120.

If there is any conflict between the Companies Act accounts and the FSA return between the ways in which exchange differences are brought into account, or the currency in which business is accounted for, the Companies Act accounts rules are definitive.