Tax treatment of foreign currency gain/profit

Tax treatment of foreign currency gain/profit at year end

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Hi all,

I have a client (UK small limited company) who received a €50,000 equity investment in December 2015. This was valued at the time at £36k.

At the company year end on 31 March 2016 the Euro bank account was valued at £39k. There were no other transactions.

Am I right in thinking the year end accounting transaction is to Dr bank account £3k and Cr other operating income £3k.

Secondly what is the tax treatment of this £3k gain/profit in the Corporation tax return CT600.

I've not had to deal with a proft/gain on FX before so please do excuse my naivety - any advice you can give would be much appreciated. 

Thank you as always.

Replies (3)

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By johngroganjga
09th Dec 2016 16:39

Yes you have an exchange gain for accounting purposes. If the company is trading it's likely to be taxable, but why did the investor's cash remain untouched for over three months.

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By Archie-Bald
09th Dec 2016 17:11

Hi John,

Thank you for the reply, basically the directors fell out just after the investment was made and the company, after putting on one small conference (this was the company's trade), is being closed down.

The investors money will be returned to him by way of the other shareholders (the directors) gifting all their shares to the investor so he owns the whole company and resigning as directors and then the investor will close it down (all at the investors request and I'm not part of that - just doing the year end accounts).

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By anewstart
11th Dec 2016 01:11

Hi Archie, the cash is a monetary asset and so must be translated to the company's functional currency at period end. Your suggested treatment would be correct.

I recently had to determine the tax treatment of such a gain myself and as far as I remember the authoritative guidance indicated the gain would be taxable as a loan relationship. I will provide more details on Monday when I am in the office

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