CFM51040 - Derivative contracts: the matters and computational rules: basic computational rule

CTA09/S595, 597 (before amendment by F(2)A15)

The following guidance relates to the position as it was before the amendments made by F(2)A15 and only applies to company periods of account beginning before 1 January 2016.

The general premise - follow the accounts

The basic premise, in CTA09/S595(1)-(2), as they stood before amendment by F(2)A15,is that the derivative contracts rules operate by reference to company accounts, and the amounts to be brought into account were those amounts recognised under Generally Accepted Accounting Practice (GAAP) in determining the company바카라 사이트™s profit or loss. GAAP meant UK GAAP and IFRS. For general guidance on GAAP, in the context of determining trading profits see the Business Income Manual, BIM31000. (For periods beginning before 1 January 2005, there was a concept of authorised accounting methods, but this was eliminated by FA2004.)

Before the amendments made by F(2)A15 there was a requirement in CTA09/S595(3) that credits and debits must be the amounts which, taken together, fairly represented the profits or losses arising to the company for the period from its derivative contracts and related transactions. This included expenses incurred by the company for the purposes of the derivative contracts (CFM51090). There is more about 바카라 사이트˜fairly represents바카라 사이트™ at CFM51050.

바카라 사이트˜Related transaction바카라 사이트™ is defined at CTA09/S596 - see CFM51060.

CTA09/S597, as it stood before amendment by F(2)A15 elaborated on what is meant by 바카라 사이트˜recognised in determining a company바카라 사이트™s profit or loss for the period바카라 사이트™. It means any amount that is recognised for accounting purposes in:

  • the company바카라 사이트™s profit and loss account, income statement or statement of comprehensive income; or
  • the statement of total recognised gains and losses (STRGL), statement of recognised income and expense (SORIE), statement of changes in equity (SOCIE) or statement of income and retained earnings for that period; or
  • any other statement of items brought into account in computing the company바카라 사이트™s profit or loss for that period, whatever name is given to it.

The inclusion of amounts taken to reserves - the STRGL or statement of changes in equity -means that, in tax computations that take the profit and loss figure as a starting point, the company may have to make adjustments to bring in such amounts.

Some of the terms that were used in the legislation have become obsolete, following changes to accounting standards.

Fundamental errors

S597(3) gave one exception to the general rule. That is where the accounts contain a prior period adjustment resulting from correction of a fundamental error in the accounts of an earlier year or years. In such a case, the company바카라 사이트™s tax liability will be computed (or recomputed) on the basis that it had correctly accounted for its derivative contracts in the earlier year or years. 바카라 사이트˜Fundamental error바카라 사이트™ includes a material prior period error as defined in IAS 8.

By contrast, a prior period adjustment resulting from a change of accounting policy in relation to a company바카라 사이트™s derivative contracts will give rise to a taxable credit or allowable debit (and see also CFM52030 in relation to changes in accounting policy). HMRC staff should consult a compliance accountant in any case where there is doubt over whether a prior period adjustment results from a fundamental error.