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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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.
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