Finance Act 2002

70 Forward premiums and discounts under currency contracts

(1) In section 153 of the Finance Act 1994 (c. 9) (qualifying payments), for subsections (4) and (5) (premiums and discounts) substitute—

“(5) For the purposes of this Chapter, in the case of any qualifying contract which is a currency contract,—

(a) the amount of any forward discount arising under the contract to a qualifying company shall be treated as a qualifying payment received by the company; and

(b) the amount of any forward premium arising under the contract from a qualifying company shall be treated as a qualifying payment made by the company.

(6) The amounts of any forward discounts and premiums arising under a contract to a qualifying company shall be determined for the purposes of subsection (5) above—

(a) in accordance with subsections (7) to (9) below in the case of a currency contract which provides for a rate of exchange between the reporting currency and another currency, and

(b) in accordance with subsection (10) below in the case of a currency contract which provides for a rate of exchange between two currencies, neither of which is the reporting currency.

(7) For the purposes of subsection (5)(a) above, the cases where a forward discount arises under a currency contract to a company are those cases where—

(a) the acquisition spot price exceeds the acquisition contract price, or

(b) the sale contract price exceeds the sale spot price;

and the amount of the forward discount is the amount of the excess mentioned in paragraph (a) or (b) above, as the case may be.

(8) For the purposes of subsection (5)(b) above, the cases where a forward premium arises under a currency contract from a company are those cases where—

(a) the acquisition contract price exceeds the acquisition spot price, or

(b) the sale spot price exceeds the sale contract price;

and the amount of the forward premium is the amount of the excess mentioned in paragraph (a) or (b) above, as the case may be.

(9) In subsections (7) and (8) above—

• “the acquisition contract price” means the amount of any currency (other than the reporting currency) to be acquired under the contract by the company, expressed in the reporting currency, using the rate of exchange determined by the terms of the contract;

• “the acquisition spot price” means the amount of any currency (other than the reporting currency) to be acquired under the contract by the company, expressed in the reporting currency, using such rate of exchange for the date on which the company becomes entitled to rights and subject to duties under the contract as is used for the purposes of the company’s accounts (as defined in section 156(6) below);

• “the sale contract price” means the amount of any currency (other than the reporting currency) to be disposed of under the contract by the company, expressed in the reporting currency, using the rate of exchange determined by the terms of the contract;

• “the sale spot price” means the amount of any currency (other than the reporting currency) to be disposed of under the contract by the company, expressed in the reporting currency, using such rate of exchange for the date on which the company becomes entitled to rights and subject to duties under the contract as is used for the purposes of the company’s accounts (as defined in section 156(6) below).

(10) Where this subsection has effect in accordance with subsection (6)(b) above, the amounts of any forward premiums and discounts arising under the contract are the amounts which, in accordance with generally accepted accounting practice, are brought into account in the same way as any forward premiums and discounts which fall to be determined in accordance with subsections (7) and (8) above.

(11) Subsection (5) above is subject to subsection (12) below.

(12) Where a qualifying company is using, as respects a qualifying contract which is a currency contract, a basis of accounting which conforms to generally accepted accounting practice and—

(a) an amount which would, but for this subsection, fall to be treated as a qualifying payment by virtue of subsection (5) above is brought into account by the company, in accordance with that basis of accounting, as a qualifying payment made or received by the company but otherwise than by virtue of being a forward premium or discount, or

(b) that basis of accounting is such that no forward premiums or discounts are treated as arising under a qualifying contract,

subsection (5) above shall not have effect in relation to that amount or, as the case may be, in relation to that contract.

(13) In this section “the reporting currency” means sterling, unless the case is one where section 93 of the Finance Act 1993 (use of foreign currency) applies, in which case it means the currency which is the relevant foreign currency for the purposes of that section.”.

(2) This section has effect for accounting periods ending on or after 26th July 2001 in relation to any currency contract to which a company is party, unless the company has ceased to be a party to the contract before that date.