Corporation Tax Act 2009

Adjustments on change of accounting policy

315 Introduction to sections 316 to 319

(1) Sections 316 to 319 apply if—

(a) there is a change of accounting policy in drawing up a company’s accounts from one period of account to the next, and

(b) the accounting policy in each of those periods accords with the law and practice applicable in relation to that period.

(2) In this section and sections 316 to 319—

(a) the first of those periods of account is referred to as “the earlier period”, and

(b) the next is referred to as “the later period”.

(3) Sections 316 to 319 apply, in particular, if—

(a) the company prepares accounts for the earlier period in accordance with UK generally accepted accounting practice and for the later period in accordance with international accounting standards, or

(b) the company prepares accounts for the earlier period in accordance with international accounting standards and for the later period in accordance with UK generally accepted accounting practice.

(4) For a case where this section and sections 316 to 318 apply as if a change of accounting policy had occurred, see section 416(5) (election for application of sections 415 and 585).

316 Change of accounting policy involving change of value

(1) If there is an increase in the carrying value of an asset representing a loan relationship of the company between—

(a) the end of the earlier period, and

(b) the beginning of the later period,

a credit equal to the increase must be brought into account for the purposes of this Part for the later period.

(2) If there is a decrease in the carrying value of such an asset between—

(a) the end of the earlier period, and

(b) the beginning of the later period,

a debit equal to the decrease must be brought into account for the purposes of this Part for the later period.

(3) If there is an increase in the carrying value of a liability representing a loan relationship of the company between—

(a) the end of the earlier period, and

(b) the beginning of the later period,

a debit equal to the increase must be brought into account for the purposes of this Part for the later period.

(4) If there is a decrease in the carrying value of such a liability between—

(a) the end of the earlier period, and

(b) the beginning of the later period,

a credit equal to the decrease must be brought into account for the purposes of this Part for the later period.

(5) This section does not apply so far as such a credit or debit as is mentioned in this section falls to be brought into account apart from this section.

317 Carrying value

(1) In section 316 “carrying value” means the carrying value of the asset or liability recognised for accounting purposes, except as provided in subsection (4).

(2) For the purposes of this section the “carrying value” of an asset or liability includes amounts recognised for accounting purposes in relation to the loan relationship in respect of—

(a) accrued amounts,

(b) amounts paid or received in advance, or

(c) impairment losses (including provisions for bad or doubtful debts).

(3) For the meaning of “impairment loss” see section 476(1).

(4) In determining the profits and losses to be recognised in determining the carrying value of the asset or liability for the purposes of this section, the provisions specified in subsection (5) apply as they apply for the purposes of determining the credits and debits to be brought into account under this Part.

(5) Those provisions are—

(a) sections 340 and 341 (continuity of treatment on group transfers and transfers of insurance business),

(b) section 349(2) (application of amortised cost basis of accounting to connected companies relationships),

(c) section 354 (exclusion of debits for impaired or released connected companies debts),

(d) section 360 (exclusion of credits on reversal of impairments of connected companies debts),

(e) sections 361 to 363 (deemed debt releases on impaired debts becoming held by connected company),

(f) Chapter 8 (connected parties relationships: late interest),

(g) sections 399 and 400 (treatment of index-linked gilt-edged securities),

(h) section 404 (restriction on deductions etc relating to FOTRA securities),

(i) sections 409 to 412 (deeply discounted securities of close companies),

(j) section 415(2) (loan relationships with embedded derivatives),

(k) sections 422 and 423 (transfer of loan relationships on European cross-border transfers of business),

(l) sections 433 and 434 (transfer of loan relationships on European cross-border mergers),

(m) section 454(4) (accounting method where rate of interest is reset),

(n) section 465 (exclusion of distributions except in tax avoidance cases),

(o) paragraph 62 of Schedule 2 (disregard of pre-2005 disallowed debits), and

(p) paragraph 69 of Schedule 2 (5½% Treasury Stock 2008-2012 not redeemed before 6 April 2009).

318 Change of accounting policy following cessation of loan relationship

(1) This section applies if—

(a) the company has ceased to be a party to a loan relationship in an accounting period (“the cessation period”),

(b) section 331 (company ceasing to be party to loan relationship) applied to the cessation, and

(c) there is a difference between the amount outstanding in respect of the loan relationship (see subsection (5))—

(i) at the end of the earlier period, and

(ii) at the beginning of the later period.

(2) In the case of an increase in that amount—

(a) if the company was the creditor under the loan relationship, it must bring into account for the later period a credit equal to the increase for the purposes of this Part, and

(b) if the company was the debtor under the loan relationship, it must bring into account for the later period a debit equal to the increase for the purposes of this Part.

(3) In the case of a decrease in that amount—

(a) if the company was the creditor under the loan relationship, it must bring into account for the later period a debit equal to the decrease for the purposes of this Part, and

(b) if the company was the debtor under the loan relationship, it must bring into account for the later period a credit equal to the decrease for the purposes of this Part.

(4) Subsections (2) and (3) do not apply so far as the credit or debit falls to be brought into account apart from this section.

(5) In this section “the amount outstanding in respect of the loan relationship” means so much of the recognised deferred income or recognised deferred loss from the loan relationship as has not been represented by credits or debits brought into account under this Part in respect of the relationship.

(6) In subsection (5)—

• “recognised deferred income”, in relation to a loan relationship, means the amount recognised in the company’s balance sheet in accordance with generally accepted accounting practice as deferred income in respect of the profits which arose from the relationship or a related transaction in the cessation period, and

• “recognised deferred loss”, in relation to a loan relationship, means the amount so recognised as deferred loss in respect of the losses which so arose.

319 General power to make regulations about changes in accounting policy

(1) The Treasury may by regulations make provision for cases where there is a change of accounting policy in drawing up a company’s accounts from one period of account to the next which affects the amounts to be brought into account for accounting purposes in respect of the company’s loan relationships.

(2) The regulations may provide for any credits or debits which would otherwise be brought into account for the purposes of this Part—

(a) not to be brought into account,

(b) to be brought into account only to a prescribed extent, or

(c) to be brought into account over a prescribed period or in prescribed circumstances.

(3) Regulations under this section may, in particular, modify the operation of sections 315 to 318.

(4) The regulations may make—

(a) different provision for different cases, and

(b) incidental, supplemental, consequential and transitional provision and savings.

(5) The regulations may apply to periods of account beginning before they are made, but not earlier than the beginning of the calendar year in which they are made.