Finance Bill

House of Commons

Session 2003 - 04
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Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 10 — Amendment of enactments that operate by reference to accounting practice
Part 3 — Intangible fixed assets
312

(b)
the approach in each of those periods accorded with the
law and practice applicable in relation to that period.
      (2)
This pararaph applies, in particular, where—
(a)
the company prepares accounts for the earlier period in
accordance with UK generally accepted accounting
5
practice and for the later period in accordance with
international accounting standards, or
(b)
the company prepares accounts for the earlier period in
accordance with international accounting standards and
for the later period in accordance with UK generally
10
accepted accounting practice.
      (3)
If there is a difference between—
(a)
the accounting value of an intangible fixed asset of the
company at the end of the earlier period, and
(b)
the accounting value of that asset at the beginning of the
15
later period,

a corresponding debit or credit (as the case may be) shall be
brought into account for tax purposes in the later period.
      (4)
The amount of the debit or credit to be brought into account for tax
purposes is:
20

where—
Accounting Difference is the amount of the difference
specified in sub-paragraph (3);
Tax Value is the tax written down value of the asset at the
end of the earlier period; and
25
Accounting Value is the accounting value of the asset at the
end of the earlier period.
      (5)
This paragraph does not apply in relation to an intangible fixed
asset in respect of which an election has been made under
paragraph 10 (election for writing down at fixed-rate).
30
      (6)
This paragraph does not apply to a difference between the
accounting value of an intangible fixed asset in different periods
of account to the extent that, in respect of that difference, a credit
or debit is brought into account for tax purposes under—
(a)
paragraph 12 (reversal of accounting gain),
35
(b)
paragraph 15 (gain on revaluation), or
(c)
paragraph 17 (reversal of accounting loss).
      (7)
Where or to the extent that an adjustment is made under this
paragraph, no adjustment under Schedule 22 (computation of
profits: adjustment on change of basis) shall be made.”.
40
References to amounts recognised in profit and loss account
73    (1)
In Part 15 of that Schedule (interpretation) paragraph 134(a) (references to
amounts recognised in profit and loss account) is amended as follows.
      (2)
After “statement of total recognised gains and losses” insert “, statement of
changes in equity”.
45

Finance Bill
Schedule 10 — Amendment of enactments that operate by reference to accounting practice
Part 4 — Foreign currency accounting
313

      (3)
After paragraph (b) insert—

“other than an amount recognised for accounting purposes by
way of correction of a fundamental error.”.
Consequential amendments
74
In paragraph 15(4) of that Schedule (credits on revaluation of intangible
5
fixed assets)—
(a)
in the definition of “Previous Debits”, after “accounting basis)” insert
“or paragraph 116A (adjustment on change of accounting policy)”;
(b)
in the definition of “Previous Credits”, at the end insert “or
paragraph 116A (adjustment on change of accounting policy)”.
10
75
In paragraph 20(1) of that Schedule (realisation of asset written down for tax
purposes), after paragraph (b) insert “, or
(c)
under paragraph 116A (adjustment on change of
accounting policy).”
76
In paragraph 27(1) of that Schedule (calculation of tax written down value of
15
asset written down on accounting basis)—
(a)
in the definition of “Debits”, after “paragraph 9” insert “or paragraph
116A (adjustment on change of accounting policy)”;
(b)
in the definition of “Credits”, at the end insert “or paragraph 116A
(adjustment on change of accounting policy)”.
20
Part 4
Foreign currency accounting
Main provisions
77
For sections 92 to 94AB of the Finance Act 1993 (c. 34) (corporation tax:
currency) substitute—
25
“Corporation tax: currency
92
The basic rule: sterling to be used
(1)
The basic rule is that for the purposes of corporation tax the profits
of a company for an accounting period must be computed and
expressed in sterling.
30
(2)
Where the basic rule applies profits and losses falling to be computed
in accordance with generally accepted accounting practice shall be
computed as if sterling were the currency of the primary economic
environment in which the company operated during the accounting
period.
35
(3)
The basic rule is subject to sections 93 to 93B (use of functional
currency).
93
Functional currency
(1)
Where in an accounting period a company carries on a business, the
company’s functional currency shall be used to determine the profits
40
and losses of the business for the purposes of corporation tax.

Finance Bill
Schedule 10 — Amendment of enactments that operate by reference to accounting practice
Part 4 — Foreign currency accounting
314

(2)
The functional currency for a period of account of a company
resident in the United Kingdom is—
(a)
if in accordance with generally accepted accounting practice
the company—
(i)
prepares accounts for the period in one currency, and
5
(ii)
in those accounts identifies another currency as the
currency of the primary economic environment in
which the company operates,

the latter currency;
(b)
in any other case, the currency in which the company
10
prepares its accounts for the period.
(3)
The functional currency for a period of account of a company that is
not resident in the United Kingdom is the currency in which the
company prepares its return of accounts for the accounting period
for its permanent establishment in the United Kingdom.
15
(4)
The following sections contain further provision about computations
where subsection (1) above applies in relation to a company resident
in the United Kingdom—

section 93A (functional currency sterling but accounts prepared
in another currency),
20

section 93B (functional currency other than sterling).
(5)
References in this section, and in those sections, to profits or losses
do not include chargeable gains or allowable losses within the
meaning of the Taxation of Chargeable Gains Act 1992.
93A
Functional currency sterling but accounts prepared in another
25
currency
If the company’s functional currency for a period of account is
sterling but in accordance with generally accepted accounting
practice it prepares accounts in another currency, the profits or losses
of the business for the period shall be taken to be the profits or losses
30
that would have appeared in the accounts if they had been prepared
in sterling.
93B
Functional currency other than sterling
(1)
This section applies if the company’s functional currency for a period
of account is not sterling.
35
(2)
The profits or losses of the business for the period shall be found by
taking the sterling equivalent of—
(a)
where the company prepares its accounts in its functional
currency, the profits and losses that appear in the accounts, or
(b)
where in accordance with generally accepted accounting
40
practice the company prepares its accounts in a currency
other than its functional currency, the profits and losses that
would have appeared in accounts if they had been prepared
in the company’s functional currency.
(3)
If the financial statements and records for a part of the business are
45
prepared in a currency other than the functional currency of the
company, the profits or losses of that part of the business shall be

Finance Bill
Schedule 10 — Amendment of enactments that operate by reference to accounting practice
Part 4 — Foreign currency accounting
315

found by taking the equivalent in the functional currency of the
amounts computed in the other currency.

Effect shall be given to this subsection before effect is given to
subsection (2).
(4)
If different financial statements and records of a part of a business are
5
prepared in different currencies (other than the functional currency
of the company), the company shall be treated as having a separate
part of a business for each such different currency.
(5)
In this section “part of a business” includes any collection of assets
and liabilities.
10
(6)
For the purposes of determining the profits or losses of a business
under this section it shall be assumed that any sterling amount
mentioned in the Corporation Tax Acts is its equivalent expressed in
the functional currency of the company.
94
Rules for translating amounts into a different currency
15
(1)
Where, for the purposes of determining the profits or losses of a
business of a company for an accounting period (the “current
accounting period”), an amount falls to be translated—
(a)
into its sterling equivalent, or
(b)
into its equivalent expressed in the functional currency of the
20
company,

the translation must be made by reference to the appropriate
exchange rate.
(2)
The “appropriate exchange rate” is—
(a)
for amounts brought forward from an earlier accounting
25
period, the average exchange rate for that period;
(b)
for other amounts, the average exchange rate for the current
accounting period.
(3)
Where a company’s functional currency changes between one
accounting period (the “earlier period”) and the next (the “later
30
period”)—
(a)
any amount brought forward from the earlier period, or
(b)
any amount—
(i)
falling to be taken into account under Chapter 5 of
Part 2 of the Capital Allowances Act as available
35
qualifying expenditure for the later period, and
(ii)
relating to expenditure incurred before the beginning
of that period,

that falls to be taken into account in the later period must be
translated into the functional currency of the company for the later
40
period by reference to the London closing exchange rate for the last
day of the earlier period.
(4)
Nothing in paragraph 88 of Schedule 18 to the Finance Act 1998
(company tax returns: conclusiveness of amounts stated in return)
shall be taken to prevent an amount being translated for an
45
accounting period by reference to an exchange rate which was not
the exchange rate used to translate that amount for another
accounting period (whether of the same or a different company).