The measure
Legislation will be introduced into Finance Bill 2010 to allow regulations to be made to amend corporation tax rules on loan relationships and derivative contracts. This is in preparation for the changes expected to be made during 2010 to International Accounting Standard 39 'Financial Instruments: Recognition and Measurement' ('IAS 39').
Who will be affected?
Businesses who have adopted IAS 39 or Financial Reporting Standard 26 'Financial Instruments: Recognition and Measurement' ('FRS 26') in their entity statutory accounts.
When?
Although the regulations will be included in Finance Bill 2010, they are primarily intended to be utilised to react to changes in the replacement accounting standard for IAS 39 and FRS 26. The current timetable for the new international accounting standards expects finalisation by the end of 2010 with mandatory application by 2013 (however EU ratification will be required before the standards can be adopted by UK companies). Therefore application of the provisions is unlikely to take place before the end of 2010 even where early adoption is allowed.
Our view
While this measure will be introduced in expectation of changes to IAS 39, it may also be used for the impact of the adoption by the UK Accounting Standards Board of International Financial Reporting Standards for Small and Medium Entities to replace existing UK Generally Accepted Accounting Practice, currently timetabled for 2012. We welcome the introduction of this measure which will enable a faster response to remove uncertainty on how financial instruments will fall to be taxed under the various new accounting standards. For example, additional volatility to profit and loss may be introduced which may not be covered by the existing 'disregard regulations' and this measure could allow for these to be dealt with via secondary legislation.
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