CFM76060 - Other tax rules on corporate finance: change of accounting basis: secondary legislation

The loan relationships and derivative contracts legislation allows regulations to be made to exclude certain amounts from being brought into account, or to bring amounts into account in a specified way or over a specified period.

Two main sets of regulations have been made to date:

  • the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004 (SI 2004/3256) (‘the Disregard Regulations’);
  • the Loan Relationships and Derivative Contracts (Change of Accounting Practice) Regulations 2004 (SI 2004/3271) (‘the COAP Regulations’).

The Disregard Regulations

The Disregard Regulations require the UK GAAP treatment that applied prior to 2005 (when FRS 26 was introduced) to continue for tax purposes for certain assets, liabilities and contracts. The Disregard Regulations apply to periods of account beginning on or after 1 January 2005, for example where a company hedges shares, ships or aircraft in a foreign currency, or hedges using currency, commodity, debt or interest rate contracts. In certain circumstances, exchange gains and losses, or fair value changes are disregarded until the company ceases to be party to the contract, or the asset or liability is disposed of.

The Disregard Regulations continue to apply to affected instruments, but they can also disregard transitional adjustments that would otherwise arise from a change in accounting policy.

CFM57000 has full details on the Disregard Regulations.

The COAP Regulations

The second set of regulations made under the regulation-making powers are the COAP Regulations. These modify the normal change of basis rules described in CFM76010 by providing that certain amounts are:

  • deferred and brought in subsequently, or
  • never brought into account.

These are described at CFM76070 onwards in more detail.

The Disregard Regulations normally take priority over the COAP Regulations. Where amounts are disregarded under the Disregard Regulations, these amounts are not then brought into account under the COAP Regulations.