Finance Act 1996

Basic rules for transitional accounting periods

3 (1) This paragraph applies as respects any continuing loan relationship of a company.

(2) In a transitional accounting period an amount accruing before 1st April 1996 in respect of a continuing loan relationship (whether it accrues as a right or liability) shall be brought into account for the purposes of this Chapter in accordance with an authorised accruals basis of accounting only if it is an amount accruing as interest.

(3) In a transitional accounting period an amount becoming due and payable before 1st April 1996 in respect of a continuing loan relationship shall be brought into account for the purposes of this Chapter in accordance with an authorised mark to market basis of accounting only if it is an amount becoming so due and payable as interest.

(4) Except where sub-paragraph (6) below applies and subject to the following provisions of this Part of this Schedule, any opening valuation that is to be made for the purpose of bringing amounts into account for the purposes of this Chapter in a transitional accounting period on a mark to market basis of accounting shall be made as at 1st April 1996, instead of as at any earlier time.

(5) Where any opening valuation is made in accordance with sub-paragraph (4) above for any transitional accounting period—

(a) that valuation, and

(b) any closing valuation made as at the end of that period for the purposes mentioned in that sub-paragraph,

shall each be made disregarding any amount of interest that has accrued in respect of any part of that period.

(6) This sub-paragraph applies in the case of a continuing loan relationship if, apart from this Chapter—

(a) a mark to market basis of accounting would have been used, in the case of the relationship, for the purpose of bringing amounts into account in the transitional accounting period; and

(b) on that basis, an opening valuation as respects the relationship would have fallen to be made for that purpose as at a time before 1st April 1996.

(7) Notwithstanding anything in sub-paragraph (2) or (3) above, where—

(a) there is an amount that accrued or became due and payable before 1st April 1996 in respect of a continuing loan relationship of a company,

(b) that amount is not interest, and

(c) that amount would, apart from this Chapter, have been brought into account for the purposes of corporation tax in the accounting period in which it accrued or, as the case may be, became due and payable,

that amount shall be brought into account in that period for the purposes of corporation tax to the same extent as it would have been so brought into account apart from this Chapter and shall not otherwise be brought into account by virtue of the application in relation to times on or after 1st April 1996 of any authorised accounting method.