3. In paragraph 2, after sub-paragraph (2) insert—
“(3) Sub-paragraph (4) applies where a company, in accordance with generally accepted accounting practice, treats rights and liabilities under a contract to which it is party and which is not a loan relationship, as divided between—
(a)rights and liabilities under one or more derivative financial instruments (“embedded derivatives”), and
(b)the remaining rights and liabilities (the “host contract”).
(4) The company shall be treated for the purposes of Schedule 26 as—
(a)party to a relevant contract whose rights and liabilities consist only of those of the embedded derivative, or
(b)if there is more than one embedded derivative, party to relevant contracts each of whose rights and liabilities consist only of those of one of the embedded derivatives.
(5) Each relevant contract to which the company is treated as party under sub-paragraph (4) shall be treated as an option, a future or a contract for differences according to whether the rights and liabilities of the embedded derivative would be of that character if contained in a separate contract.”.