Part 7

Derivative contracts
Chapter 3

Credits and debits to be brought into account: general

Rules differing from generally accepted accounting practice

Credits and debits treated as relating to capital expenditure
604
1
This section applies if—
a
an amount for an accounting period in respect of a company's derivative contract relates to any of the matters in section 594A(1),
b
generally accepted accounting practice allows the amount to be treated in the company's accounts as an amount recognised in determining the carrying value of an asset or liability, and
c
any profit or loss for corporation tax purposes in relation to that asset or liability will not fall to be calculated in accordance with generally accepted accounting practice.
2
Despite that treatment, the amount must be brought into account as a credit or debit in accordance with this Part, for the accounting period in which it is recognised, in the same way as an amount which is brought into account as a credit or debit in determining the company's profit or loss for that period in accordance with generally accepted accounting practice.
3
But subsection (2) does not apply to an amount which relates to an intangible fixed asset to which an election under section 730 (writing down at fixed rate: election for fixed-rate basis) applies.
4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
If an amount is brought into account as mentioned in subsection (2) as a debit, no debit may be brought into account in accordance with this Part in respect of—
a
the writing down of so much of the value of the asset or liability as is attributable to that debit, or
b
so much of any amortisation or depreciation representing a writing off of that value as is attributable to that debit.

Amounts recognised in other comprehensive income and not transferred to profit or loss
604A
1
This section applies if—
a
in a period of account a derivative contract of a company ceases in accordance with generally accepted accounting practice to be recognised in the company's accounts,
b
amounts relating to the matters mentioned in section 594A(1) in respect of that derivative contract have in accordance with generally accepted accounting practice been recognised in the company's accounts as items of other comprehensive income and have not subsequently been transferred to become items of profit or loss, and
c
condition A or B is met.
2
Condition A is that, at the time when the derivative contract ceases to be recognised, it is not expected that the amounts mentioned in subsection (1)(b) will in future be transferred to become items of profit or loss.
3
Condition B is that, at any later time, it is no longer expected that the amounts mentioned in subsection (1)(b) will in future be transferred to become items of profit or loss.
4
The amounts mentioned in subsection (1)(b)—
a
must be brought into account for the purposes of this Part as credits or debits for the period of account in which the time mentioned in subsection (2) or (3) falls, in the same way as a credit or debit which is brought into account in determining the company's profit or loss for that period in accordance with generally accepted accounting practice, and
b
must not be brought into account for a later period of account even if they are subsequently transferred to become items of profit or loss for the later period.
5
This section applies in a case where part of a derivative contract of a company ceases to be recognised in the company's accounts as it applies in a case where the whole of a derivative contract ceases to be recognised, but as if the reference in subsection (1)(b) to amounts in respect of a derivative contract were a reference to so much of those amounts as are attributable to that part of the derivative contract.
6
In determining what amounts fall within subsection (1)(b) at any time in an accounting period, it is to be assumed that the accounting policy applied in drawing up the company's accounts for the period was also applied in previous accounting periods.
7
But if the company's accounts for the period are in accordance with generally accepted accounting practice drawn up on an assumption as to the accounting policy in previous accounting periods which differs from that mentioned in subsection (6), that different assumption applies in determining what amounts fall within subsection (1)(b) at the time in question.
8
In this section “item of profit or loss” and “item of other comprehensive income” each has the meaning that it has for accounting purposes.

Credits and debits recognised in equity
605. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. 604(4) omitted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 65(3)
Pt. 7 modified (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 88(1)(2)(7) (with s. 147, Sch. 17)
S. 604(1)-(3) substituted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 65(2)
S. 604A inserted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 66
Pt. 7 modified by 2007 c. 3, s. 809FZZ(8) (as inserted (with effect in accordance with s. 37(4) of the amending Act) by Finance Act 2016 (c. 24), s. 37(2))
S. 605 omitted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 67
Pt. 7 modified (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 601, 1184(1) (with Sch. 2)
S. 604(5) substituted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 65(4)