(1)This Chapter makes further provision about the credits and debits to be brought into account for the purposes of this Part.
(2)In particular, it—
(a)provides for adjustments on a change of accounting policy (see sections 613 to 615),
(b)makes provision in relation to certain embedded derivatives (see sections 616 to 618),
(c)makes provision about partnerships involving companies (see sections 619 to 621),
(d)makes provision about contracts ceasing to be derivative contracts (see section 622), and
(e)makes provision in relation to some gilt-edged securities (see section 623).
(1)Sections 614 and 615 (adjustments on change of accounting policy) 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 those sections—
(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 614 and 615 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)If an election is made under section 416, this section and sections 614 and 615 apply as if there were a change of accounting policy consisting of the company treating the assets referred to in section 416(1)(c) as mentioned in section 585(1) as from the date the election has effect.
(1)If there is an increase in the carrying value of a derivative contract of the company between—
(a)the end of the earlier period, and
(b)the beginning of the later period,
a credit of an amount equal to the increase must be brought into account in accordance with this Part for the later period.
(2)If there is a decrease in the carrying value of such a derivative contract between—
(a)the end of the earlier period, and
(b)the beginning of the later period,
a debit of an amount equal to the decrease must be brought into account in accordance with this Part for the later period.
(3)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.
(1)This section applies if—
(a)the company has ceased to be a party to a derivative contract in an accounting period (“the cessation period”),
(b)section 608 (credits and debits to be brought into account in respect of profits and losses arising in the cessation period) applied to the cessation, and
(c)there is a difference between the amount outstanding in respect of the derivative contract (see subsection (5))—
(i)at the end of the earlier period, and
(ii)at the beginning of the later period.
(2)If that amount has increased, a credit of an amount equal to the increase must be brought into account in accordance with this Part for the later period.
(3)If that amount has decreased, a debit of an amount equal to the decrease must be brought into account in accordance with this Part for the later period.
(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 subsection (1) “the amount outstanding in respect of the derivative contract” means so much of the recognised deferred income or recognised deferred loss from the derivative contract as has not been represented by credits or debits brought into account in accordance with this Part in respect of the contract.
(6)In subsection (5)—
“recognised deferred income”, in relation to a derivative contract, 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 contract or a related transaction in the cessation period, and
“recognised deferred loss”, in relation to a derivative contract, means the amount so recognised as deferred loss in respect of the losses which so arose.
(1)This section applies if—
(a)a company is treated as a party to a relevant contract under section 584(2)(a) or 586(2) (“the embedded derivative”),
(b)the embedded derivative is a derivative contract which meets the condition in section 579(1)(a) (contract treated for accounting purposes as derivative),
(c)section 592 (embedded derivatives treated as meeting condition in section 591 etc) does not apply in relation to the embedded derivative, and
(d)regulation 9 of the Disregard Regulations (interest rate contracts) does not apply to the embedded derivative.
(2)If this section applies—
(a)sections 573 and 574 (trading credits and debits to be brought into account under Part 3 and non-trading credits and debits to be brought into account under Part 5) do not apply in relation to the embedded derivative, and
(b)subsection (3) or subsections (4) to (6) apply in relation to the original contract, depending on whether that contract is a hybrid derivative or a contract within section 586(1).
(3)If the original contract is a hybrid derivative, profits and losses are to be calculated for the purposes of this Part as if that contract—
(a)were not one where the rights and liabilities are treated for accounting purposes as divided as mentioned in section 584(1) (hybrid derivatives with embedded derivatives), and
(b)were not one in relation to which a fair value basis of accounting is used.
(4)If the original contract is a contract within section 586(1), profits and losses are to be brought into account for the purposes of the Corporation Tax Acts in relation to that contract as if that contract—
(a)were not one where the rights and liabilities are treated for accounting purposes as divided as mentioned in section 586(1) (other contracts with embedded derivatives), and
(b)were not one in relation to which a fair value basis of accounting is used.
(5)Accordingly, this Part does not apply to the original contract (except for the purposes of this section), but section 46 applies to that contract as if fair value accounting were not generally accepted accounting practice in relation to the company.
(6)Subsections (4) and (5) apply despite section 699(1) (priority of this Part for corporation tax purposes).
(7)In this section—
“the Disregard Regulations” means the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004 (S.I. 2004/3256), and
“the original contract” means—
the hybrid derivative as a result of which the company falls to be treated under section 584(2) (hybrid derivatives with embedded derivatives) as a party to the embedded derivative, or
the contract within section 586(1) (other contracts with embedded derivatives) as a result of which the company falls to be treated under section 586(2) as a party to the embedded derivative.
(1)A company may elect that section 616 is not to apply in relation to its contracts.
(2)But such an election does not apply to a contract if—
(a)the contract is a contract of long-term insurance, or
(b)the underlying subject matter of the embedded derivative is, or includes, commodities.
(3)An election under this section—
(a)must be made before the end of the first applicable accounting period of the company, and
(b)is irrevocable.
(4)In subsection (3) “the first applicable accounting period” means the first accounting period in which the conditions in section 616(1) are met.
(5)Section 618 makes further provision about elections under this section.
(1)If—
(a)a company makes an election under section 617 in relation to its contracts, and
(b)another company, which is a member of the same group as the company making the election, is a party to a contract to which the election applies,
the other company is treated, in relation to that contract, as if it had also made such an election.
(2)If—
(a)a company (“the electing company”) makes an election under section 617 in relation to its contracts,
(b)another company (“the transferee”) becomes a party to a contract to which section 584 (hybrid derivatives with embedded derivatives) or section 586 (other contracts with embedded derivatives) applies, in place of the electing company (whether before or after the election is made), and
(c)the transferee is a member of the same group of companies as the electing company at the time of the transfer,
the transferee is treated, in relation to the contract mentioned in paragraph (b), as if it had also made such an election.
(3)If—
(a)a company (“A”) is treated under section 584 or 586 as a party to a relevant contract in relation to which section 616(1) applies,
(b)another company (“B”) becomes a party to that contract in place of A,
(c)A and B are members of the same group of companies when B becomes a party to the contract, and
(d)section 616(1) does not apply in relation to B’s other relevant contracts because of an election under section 617 (whenever made),
subsection (4) applies, unless A, subsequent to B’s becoming a party to the contract, makes such an election.
(4)B is treated, in relation to the contract mentioned in subsection (3)(b), as if section 616(1) applied in relation to it.
(5)In this section, references to a company being a member of the same group of companies are to be read in accordance with section 170 of TCGA 1992 (interpretation of sections 171 to 181 of that Act: groups).
(1)This section applies if—
(a)a trade or business is carried on by a firm,
(b)any of the partners in the firm is a company (a “company partner”), and
(c)the firm is a party to a contract which is a derivative contract or would be a derivative contract if the firm were a company.
(2)No credits or debits may be brought into account in accordance with this Part in respect of the contract in calculating the profits and losses of the trade or business for corporation tax purposes under section 1259 (calculation of firm’s profits and losses).
(3)Instead, each company partner must bring into account in accordance with this Part credits and debits in respect of the contract for each of its accounting periods in which the conditions in subsection (1) are met.
(4)Sections 620 (determination of credits and debits by company partners) and 621 (company partners using fair value accounting) contain special rules about the credits and debits to be brought into account under subsection (3).
(5)In sections 620 and 621 “company partner” has the same meaning as in this section.
(1)The credits and debits to be brought into account under section 619(3) are to be determined separately for each company partner as follows.
(2)The contract entered into or acquired by the firm is treated as if it were instead entered into or acquired by the company partner for the purposes of the trade or business which the company partner carries on.
(3)Anything done by or in relation to the firm in connection with the contract is treated as done by or in relation to the company partner.
(4)So far as exchange gains or losses arising from the contract are recognised in the firm's—
(a)statement of total recognised gains and losses,
(b)statement of recognised income and expense,
(c)statement of changes in equity, or
(d)statement of income and retained earnings,
they are treated as if they had been recognised in the corresponding statement of the company partner.
(5)The credits and debits in the case of each company partner are the partner’s appropriate share of the total credits and debits determined in accordance with subsections (2) to (4).
(6)A company partner’s “appropriate share” is the share which would be apportioned to it on the assumption in subsection (7).
(7)The assumption is that the total credits and debits determined in accordance with subsections (2) to (4) are apportioned between the partners in the shares in which any profit or loss would be apportioned between them in accordance with the firm’s profit-sharing arrangements.
(1)This section applies if a company partner uses fair value accounting in relation to its interest in the firm.
(2)The credits and debits to be brought into account by the company partner under section 619(3) are to be determined on the basis of fair value accounting.
(1)This section applies if a company is a party to a relevant contract which ceases to be a derivative contract.
(2)The company is treated for the purposes of this Part as if it had disposed of the contract in a related transaction at the relevant time for consideration of an amount equal to the notional carrying value of the contract at that time.
(3)In this section “the relevant time” means the time when the contract ceases to be a derivative contract.
(4)For the purposes of this section, the “notional carrying value” of the contract at the relevant time is the amount which would have been the carrying value of the contract in the accounts of the company if a period of account had ended immediately before that time.
(5)See also section 662 (chargeable gains provision for contracts ceasing to be derivative contracts).
(1)This section applies to a derivative contract of a company for an accounting period if each of conditions A to D is met.
(2)Condition A is that the derivative contract is a relevant contract to which the company is treated as a party under section 585(2) (loan relationships with embedded derivatives) because of a creditor relationship of the company.
(3)Condition B is that the derivative contract is treated as a contract for differences by section 585(3) (contract treated as option, future or contract for differences).
(4)Condition C is that the creditor relationship is an index-linked gilt-edged security.
(5)Condition D is that the credits and debits which fall to be brought into account for the accounting period for the purposes of Part 5 (loan relationships) in respect of the host contract are non-trading credits and non-trading debits.
(6)The credits and debits which would fall to be brought into account in accordance with this Part in respect of the derivative contract for the accounting period apart from this section may not be so brought into account.
(7)In this section—
“the host contract” means the loan relationship to which the company is treated as a party under section 415(2) (loan relationships with embedded derivatives) because of the creditor relationship mentioned in subsection (2), and
“index-linked gilt-edged security” has the same meaning as in Part 5 (see section 399(4)).