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HMRC internal manual

General Insurance Manual

Taxation of the investment return: corporate and government debt: exchange differences: accounting periods ending after 31 March 1996 and beginning before 1 October 2002

For periods beginning before 1 October 2002, Chapter 2 Part 4 FA 1996 did not cover exchange differences arising on loan relationships. FA96/SCH9/PARA4 required the credits and debits from translating or converting exchange differences to be excluded from those brought into account for the purposes of the Chapter. However, Forex trading gains or losses are treated in exactly the same way as loan relationship trading gains and losses. So there was usually no need in practice for exchange gains and losses to be separated out, except where the company had to compute an initial exchange gain on the asset for other Forex provisions such as the transitional rules.

The Forex legislation in Chapter 2 Part 2 FA 1993, and regulations made under the powers in that Chapter, established the translation basis as the sole basis for dealing with exchange differences on those ‘qualifying assets and liabilities’ within the scheme. Under these rules the balance sheet cost of assets and liabilities is recalculated at each balance sheet date by reference to a rate of exchange, with any differences from the last recalculation being treated as exchange gains and losses for the period. This was so even though at the time the legislation was introduced the realisation basis (GIM5180) applied generally to the assets concerned. See CTM72160+ for guidance on the 1993 legislation.

The legislation has effect for accounting periods beginning on or after 23 March 1995 and before 1 October 2002. Details of the transitional provisions can be obtained through a general enquiry to CT&VAT (Technical) Insurance Group - see ‘Technical Help’ link on left bar.