CFM64470 - Accounts drawn up in a foreign currency: rates used for translation: FA09 transitional rules: carried forward losses

FA09/SCH18/PARA9, 11

Transitional rules for losses carried forward from a period before the FA09 rules first applied

This guidance applies to accounting periods beginning on or after 29 December 2007, unless an election has been made to defer the start date of the FA09 changes to the first accounting period beginning on or after 21 July 2009. Where such an election was made the transitional rules did not apply, see CFM64480.

FA09 included transitional rules that applied when losses that originate in an accounting period before these new rules apply were carried forward into a period after these new rules apply. The rules were regarded as spent by the time CTA 2010 came into effect (for accounting periods ending on or after 1 April 2010) and therefore not rewritten into CTA10/SCH2.

Where such losses originated in an accounting period prior to the application of these new rules, they would have been translated from the currency in which they were computed into sterling losses. They would then be carried forward in sterling.

Transitional rules were therefore required in order to retranslate the losses back into the currency in which they originated. This conversion would take place at the spot rate on the first day of the first accounting period to which the FA09 rules first applied.

This translation required three steps:

The loss was translated into sterling at the ‘appropriate exchange rate’ (CFM64340) for the accounting period in which the loss arose.

The loss from Step 1 was translated into the currency in which it originated at the spot rate of exchange on the first day that the new rules apply (i.e. for most companies, the first accounting period beginning on or after 29 December 2007).

The loss would then be translated into sterling in the accounting period in which it is offset in accordance with the normal rules for offsetting carry forward losses.