HMRC offer guidance on derivative contracts tax changes

A four-week informal consultation is being offered by HMRC regarding the draft legislation for proposed amendments to the taxing of derivative contracts and corporate debt.

The new changes will affect existing legislation on loan relationships in a further attempt to clamp down on perceived abuses in corporate taxation.

Change of Accounting Practice Regulations

The changes will see the introduction of a specific provision that applies where there is a change of accounting practice.

The amendments to the Change of Accounting Practice Regulations will mean that adjustments arising from fluctuations in a company’s credit rating will be directly addressed under the new system.

The majority of the changes are relatively minor and will mean adjustments being made following the amount of profit or loss in a commercial account. There will also be some changes to the terminology that is used.

Disregard Regulations

Foreign branches of UK companies as well as own credit risk will come under increased scrutiny, although tax rules on hedging will be simplified by amendments to the existing Disregard Regulations.

The consultation process will deal with the debate surrounding the supporting memorandum references to “when a company's creditworthiness deteriorates, the fair value of its issued debt will decrease (and vice versa)."

Essentially, this means that under new accounting rules, a gain or a loss will in future be recognised in the company’s reserves and therefore not be immediately subject to tax.

The technical consultation will close on 30th October 2015.