Managing taxable foreign exchange differences
For accounting periods ending on or after 1 April 2011, it will be possible for UK investment companies to elect to use a currency other than their functional currency for accounting purposes provided certain conditions are met.
This is known as a designated currency election, and it can only be made when a ‘significant’ proportion of the company’s assets and liabilities are denominated in the chosen currency. The election is good news for investment companies with significant loan relationships or derivatives in a currency other than their accounts functional currency. By making the election to designate the currency that the loans are denominated in as the functional currency for tax purposes, taxable forex differences will no longer arise on those particular assets and liabilities. The election must be made in advance of the accounting period to which it is to apply. Therefore, any 31 March year end investment companies affected by this change need to act quickly to take advantage.
For more information please contact Rosemary Blundell.