Matching foreign exchange differences

Changes have been made to the tax regulations which affect how foreign currency differences are taxed.

Broadly speaking, companies accounting under IFRS or new UK GAAP were able to elect under the Disregard Regulations to match hedging liabilities against the net asset value of the asset they wished to hedge, rather than the carrying value in the accounts. In making this election, companies had to commit to compare the amount of the hedging liability against the net asset value over fixed periods, known as review periods, which could not exceed 92 days. However, from 1 April 2011, the Regulations change further so that if there is a 10% change in the net asset value of the matched asset, a new review period will automatically start. This means that companies will have to monitor changes in the net asset value to determine when review periods end, and recognise that this will impact on the amount of foreign exchange differences which are taxable in the accounting period, rather than being potentially recognised on the sale of the underlying asset, depending on whether or not the shares sold qualify for substantial shareholdings exemption. However, it will now be possible to amend the previous election to have a review period of longer than 92 days, but companies wishing to take advantage of this need to make the election by 1 June 2011.