Local currency – the fine print

Last month Roger Muray of Ernst and Young explained the background to the amendments that the Inland Revenue is proposing to the foreign exchange (forex) local currency provisions. In this article, John Lindsay reviews the “fine print” of the draft amendments that the Inland Revenue published for consultation in early February.

John Lindsay, Linklaters & Alliance

Under the forex legislation, a company is required to compute exchange gains and losses by reference to its local currency. The general rule is that a company’s local currency for the purposes of the forex legislation is sterling, regardless of the currency in which it prepares its accounts. There is an exception to this rule in the case of a trading company and such companies can elect to compute exchange gains and losses for all or part of their trade using a non-sterling local currency. This election, however, only applies for the computation of the company’s Schedule D Case I trading profits and the company’s non-trading profits (including capital gains) still have to be computed as if the company’s local currency was sterling.