Finance Bill 2002
Amendment 124
Page: 341 Line: 28
Mr Andrew Smith (Labour, Oxford East)
124
Schedule 26, page 341, line 28, at end insert-
'(3) Sub-paragraph (4) has effect where, in the case of a derivative contract of a company,-
(a) the company uses, as respects the contract, a basis of accounting other than an authorised mark to market basis of accounting for an accounting period (the "preceding period"), but
(b) by virtue of sub-paragraph (2), the company must for the succeeding accounting period (the "first mark to market period") use, as respects the contract, an authorised mark to market basis of accounting as its authorised accounting method for the purposes of this Schedule.(4) Where this sub-paragraph has effect in relation to a derivative contract of a company, the company shall be deemed-
(a) to have disposed of the contract immediately before the end of the preceding period for a consideration of an amount equal to the fair value of the contract at that time, and
(b) to have reacquired it for the same consideration immediately after the beginning of the first mark to market period.'
EXPLANATORY NOTE
SUMMARY
1. The purpose of the amendment is to ensure that profits and losses do not fall out of account when a company changes to following a mark- to-market basis of accounting for tax purposes.
DETAILS OF THE AMENDMENT
2. The amendment inserts new sub-paragraphs (3) and (4) into paragraph 20 of Schedule 26 to the Bill. Paragraph 20 provides that in certain circumstances the company must use a mark-to-market basis of accounting for tax purposes even where it does not use such a basis in its own accounts. Where this happens then without the rules in new sub-paragraphs (3) and (4), it would be possible for an amount of profit or loss to fall out of account on the change. The amendment ensures that this amount is brought into account for the period immediately before the change to mark-to-market accounting. It treats the company as having disposed of the contract for an amount equal to its fair (or market) value immediately before it moves to mark-to-market, and to have reacquired it at the same value.
BACKGROUND
3. The measures included in the Finance Bill as Schedule 26 represent the outcome of a major consultative process between the Government and representatives of, and advisers to, business. Two Consultative documents and a Technical Note have been produced, and two rounds of draft clauses have been published, most recently on 19 December 2001.