CFM64350 | Accounts drawn up in a foreign currency: rates used for translation: carrying back non-sterling losses

CTA10/S12, 17(5)

The basic rule is that profits and losses are translated into sterling at the rate(s) applicable for the period. However, special rules apply for the carry back and carry forward of non-sterling losses.

Carry back non-sterling losses

Where losses that have been computed in a currency other than sterling are carried back, CTA10/S12 requires translation to be made in accordance with one of three rules.

The rules make reference to the “tax calculation currency” for an accounting period. This is defined in S17(5) as the currency in which profits or losses of the company that are calculated in accordance with UK GAAP for CT purposes are required to be calculated by a rule in CTA10/S5-9(2). The term was introduced, as a replacement for “operating currency” when the FA93 rules were re-written into CTA10. It will be either a company’s functional currency or, in the case of a UK investment company that has made a valid designated currency election, that designated currency.

Rule 1

This is the most common circumstance. It applies where the tax calculation currency in the accounting period when the loss arose is the same as the tax calculation currency in the earlier accounting period when the loss is offset.

Where Rule 1 applies, the loss would be translated into sterling at the same exchange rate as the rate used to translate the profits in the earlier period.

CFM64370 has an example of Rule 1 in operation.

Rules 2 and 3

Rules 2 and 3 apply where there are non-sterling losses carried back and the tax calculation currency of the company has changed.

CFM64420 has further details on the rules that apply where there is a change of operating currency.

Periods before 29 December 2007

The guidance above applies to accounting periods beginning on or after 29 December 2007, unless an election was made to defer the start date of the FA09 changes to the first accounting period beginning on or after 21 July 2009, see CFM64480.

In periods beginning on or after 1 January 2005 but before 29 December 2007, once the loss for a period had been translated into sterling, that permanently fixed the sterling amount available to carry forward or back.

For details where a loss is carried back to a period to which the old rules applied, see CFM64450.