Part 7

Derivative contracts
Chapter 2

Contracts to which this Part applies

Meaning of “derivative contract” and other basic definitions

The accounting conditions
579
1
The accounting conditions for any accounting period are that—
a
the relevant contract is treated for accounting purposes as a derivative,
b
the relevant contract—
i
is not so treated just because of not meeting the requirement in paragraph 9(b) of Financial Reporting Standard 26 issued in December 2004 by the Accounting Standards Board (requirement for no initial net investment or smaller initial net investment than comparable types of contract), but
ii
is or forms part of a financial asset or liability for accounting purposes, or
c
the relevant contract is not within paragraph (a) or (b), but is within subsection (2).
2
A relevant contract is within this subsection if—
a
its underlying subject matter is commodities, or
b
it is a contract for differences whose underlying subject matter is—
i
land,
ii
tangible movable property, other than commodities which are tangible assets,
iii
intangible fixed assets,
iv
weather conditions, or
v
creditworthiness.
3
For the purposes of subsection (1)(a), a relevant contract of a company is treated for accounting purposes as a derivative for an accounting period if for that period—
a
it is so treated for the purposes of the relevant accounting standard used by the company for that period, or
b
it would be so treated if the company used the relevant accounting standard for that period in respect of the contract.
4
For the purposes of subsection (1)(b), a relevant contract of a company is or forms part of a financial asset or liability for accounting purposes for an accounting period if for that period—
a
it is or does so for the purposes of the relevant accounting standard used by the company for that period, or
b
it would be or would do so if the company used the relevant accounting standard for that period in respect of the contract.
5
In this section “relevant accounting standard” means—
a
for any accounting period in relation to which it is required or permitted to be used, Financial Reporting Standard 25 issued in December 2004 by the Accounting Standards Board, as from time to time modified, amended or revised, or
b
for any accounting period in relation to which it is required or permitted to be used, any subsequent accounting standard dealing with transactions which are derivatives, as from time to time modified, amended or revised.
6
For the meaning of “underlying subject matter”, see section 583.
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)
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))
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)