The Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) (Amendment) Regulations 2006

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations amend the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004 (S.I. 2004/3256, as amended by S.I. 2005/2012 and S.I. 2005/3374: “the Principal Regulations”) which allow certain profits and losses from loan relationships and derivative contracts to be left out of account, to be brought into account in a different way or to be brought into account at a later date.

Regulation 1 provides for citation, commencement and effect. Authority for the limited retrospective effect of these Regulations is given by paragraph 52 of Schedule 4 to the Finance Act 2005 (c. 7).

Regulation 2 introduces the amendments to the Principal Regulations.

Regulation 3 amends regulation 6 (rules about fair value profits and losses) of the Principal Regulations to make provision for companies to elect that regulations 7, 8 or 9 (as the case may be) shall not apply to a currency contract, a commodity contract, a debt contract or an interest rate contract (as the case may be), but that regulation 9A shall apply instead.

Regulation 4 amends regulation 9 (profits or losses arising from derivative contracts which are interest rate contracts) to identify an accounting mismatch when fair value profits or losses are not brought into account on the hedged item in respect of the risk that is being hedged.

Regulation 5 makes consequential amendments to regulation 9A of the Principal Regulations and inserts a transitional provision.

Regulations 6 and 7 amend regulations 11 and 12 of the Principal Regulations in relation to loan relationships to which section 93 (relationships linked to the value of chargeable assets) of the Finance Act 1996 (c.8) applied immediately before the start of the first accounting period of a company to begin on or after 1st January 2005 so that credits and debits in respect of exchange gains and losses are disregarded. Regulation 7 also inserts a new paragraph (2A) which prescribes amounts to be disregarded in cases where section 94A does not apply in the first accounting period of the company to begin on or after 1st January 2005.

These Regulations impose no new costs on business.