Finance (No. 2) Act 2005

Loan relationships with embedded derivatives

7 (1) Where—

(a) a company is subject to old UK GAAP for a period of account beginning on or after 1st January 2005, and

(b) it holds assets (“relevant assets”) that—

(i) it is not permitted, under old UK GAAP, to treat as mentioned in subsection (1) of section 94A of FA 1996 (loan relationship with embedded derivative treated as two assets), with the result that that section does not apply, and

(ii) it would have been permitted to treat as mentioned in that provision if it had been subject to international accounting standards or new UK GAAP,

the company may elect that Chapter 2 of Part 4 of FA 1996 (loan relationships) and Schedule 26 to FA 2002 (derivative contracts) shall have effect as if section 94A did apply.

(2) Any such election—

(a) must be made in writing to an officer of Revenue and Customs,

(b) must be made—

(i) on or before 31st December 2005, or

(ii) after that date in accordance with sub-paragraph (3)(a) or (b),

and

(c) is irrevocable.

(3) An election may be made after 31st December 2005—

(a) if the company does not hold any relevant assets at the beginning of its first period of account beginning on or after 1st January 2005 but subsequently acquires one (or more) and the election is made no later than 90 days after the acquisition (or, if there is more than one, the first of them), or

(b) if the company does not have a period of account beginning in the calendar year 2005 and holds one or more relevant assets at the beginning of its first period of account beginning after the end of that year and the election is made no later than 90 days after the beginning of that period of account.

(4) An election under this paragraph has effect in relation to all relevant assets held by the company (including those subsequently acquired).

(5) An election under this paragraph—

(a) if made on or before 31st December 2005, has effect from the beginning of the company’s first period of account beginning on or after 1st January 2005;

(b) if made after 31st December 2005 in accordance with sub-paragraph (3)(a), has effect from the beginning of the period of account in which the first relevant asset is acquired;

(c) if made after 31st December 2005 in accordance with sub-paragraph (3)(b), has effect from the beginning of the company’s first period of account beginning on or after 1st January 2005.

(6) Where an election is made under this paragraph the provisions of paragraph 19A of Schedule 9 to FA 1996 and paragraph 50A of Schedule 26 to FA 2002 (adjustments on change of accounting policy) apply as if there were a change of accounting policy (consisting in the company treating its relevant assets as mentioned in section 94A(1) as from the date the election has effect).

(7) In this paragraph “old UK GAAP” means UK generally accepted accounting practice as it applied for periods of account beginning before 1st January 2005 and “new UK GAAP” means UK generally accepted accounting practice as it applies for periods of account beginning on or after that date.

(8) Any election made under paragraph 28(3) of Schedule 4 to FA 2005 before the passing of this Act shall have effect as if made under this paragraph.