UK company trades mainly in Euros and has high debtors due from Italian company under common control. Cue the Brexit vote, pound slumps and suddenly we have a huge exchange rate gain. Client unhappy to pay tax on a paper gain, despite previous paper losses contributing greatly to b/f tax losses.
Proposed solution - do the accounts in Euros under s469 of the Companies Act. Convert opening balances to Euros at 2015 rate and do 2016 sterling P&L items at average rate. The gain disappears and underlying profit is only slightly higher when converted to sterling for the CT600. The credit appears to have taken up residence in the director's loan a/c, which was previously recorded in sterling.
I was worried about the tax treatment but according to HMRC archived content (Frequently Asked Questions about the Euro) there is no need to work out what exchange rate gains and losses would have arisen had the accounts been in sterling. You simply translate the Euro accounts to sterling at the closing rate. Seems too good to be true somehow but that's what it says.
Only trouble is, what about tax losses? Instinct told me to go back over them and strip out the currency gains/losses, but on second thoughts the change is only effective from 1/1/16, so why disturb previous tax returns?
From a tax perspective, it seems unnatural to lock in currency losses on the CT600 and then start doing accounts in Euros when the rate moves against you. Can that really be right?