GIM6360 - Technical provisions: periods of account beginning on or after 1 January 2000 and ending before 19 July 2007: General Insurance Reserves (Tax) Regulations: currency accounting: periods beginning on or after 5 December 2003
Regulation 5: accounting in foreign currencies after 4 December 2003
The 2003 amendment to the regulations removed the election regime, although the effect of an election made before the change could carry on, and elections continue to be made until 31 December 2003 under a transitional regulation (regulation 7(2) SI2003/2862). Otherwise, for accounting periods ending on or after 5 December 2003, the foreign currency accounting rules in the regulations were brought into line with the currency accounting rules (as amended by FA 2002) in FA93/S92 to FA93/S94AB, and broadly follow those which apply to the computation of profits generally for tax purposes. The rules were:
Under regulation 5(1) a Controlled Foreign Company had to carry out the calculations in the currency required to be used by the CFC rules in ICTA88/S747A.
Under regulation 5(2), where FA93/S93A applied (cases where the accounts of the company as a whole are prepared in sterling but in relation to a part of the business are prepared in sterling from records in a foreign currency using the closing rate/net investment method), the calculations for that part of the business were to be carried out in that currency. The result of the calculations was then translated into sterling using the rate employed in the closing rate/net investment calculation (normally the closing rate for the period in respect of which the calculations were being made).
Under regulation 5(3), where FA93/S93 applied (accounts of the company as a whole drawn up wholly in a foreign currency) the calculations were to be wholly carried out in that currency. The regulation also specified that the result of the calculations was translated into sterling using the London closing exchange rate.
Under regulation 5(4), where none of the above applied, the calculations in relation to any foreign currency expressed liabilities were to be carried out in sterling, translating each item in accordance with the rules in FA93/S94AA, using the closing rate for provisions still held at the balance sheet date and the actual rate (possibly an average) for other payments.
For cases where the discounting calculations were carried out in a currency and then translated into sterling, it meant that the entries in the grid set out in GIM6330 would be like this:
| Year | Prov’n | Paid | Prov’n + Paid | Recalcul. Provision | Margin | Cumul. Excess | Excess this year | Add to profit |
|---|---|---|---|---|---|---|---|---|
| - | $ | $ | $ | $ | $ | $ | $ | £ \n(say) |
| 2004 | 5000 | - | - | - | - | - | - | - |
| 2005 | 4000 | 800 | 4800 | 4680 | 234 | 86 | 86 | 2 |
| 2006 | 3000 | 800 | 4600 | 4396 | 220 | 384 | 298 | 15 |
And where regulation 5(4) applies the position is:
| Year | Prov’n | Paid | Prov’n + Paid | Recalcul. Provision | Margin | Cumul. Excess | Excess this year | Add to profit |
|---|---|---|---|---|---|---|---|---|
| - | £ | £ | £ | £ | £ | £ | £ | £ |
| 2004 | 5000* | - | - | - | - | - | - | - |
| 2005 | 4000* | 800** | 4800 | 4680 | 234 | 86 | 86 | 3 |
| 2006 | 3000* | 800** | 4600 | 4396 | 220 | 384 | 298 | 23 |
* these items are translated into sterling using the closing rate for the period concerned
** these items are translated into sterling using the actual rate for the date of payment or an average rate
Regulation 5(5) provided that where the foreign currency used in the calculations is one of Australian dollars, Canadian dollars, Euro, Japanese yen, Swiss francs or United States dollars (whether as a result of the rules in GIM6350 or the election regime saved by regulation 7(2) of the 2003 Regulations) that currency determined the discount rate. See GIM6250.