Commentary

B2.120 Introduction to exchange rate differences

Business tax
Business tax | Commentary

B2.120 Introduction to exchange rate differences

Business tax | Commentary

Fluctuations in rates of exchange

B2.120 Introduction to exchange rate differences

If a business makes sales or purchases in a foreign currency, or has assets or liabilities that are denominated in foreign currencies, its accounts will reflect foreign exchange gains or losses. As a result of changes in rates of foreign exchange, profits or losses may arise in sterling terms. An exchange difference can arise:

  1.  

    •     on a 'conversion' into sterling, ie, an exchange of a foreign currency for sterling, or

  2.  

    •     on a 'translation' into sterling, ie, where a foreign currency asset or liability is valued in terms of sterling at a particular date

Exchange gains and losses which arise on the monetary assets or liabilities of companies, are taxed or relieved under the loan relationships

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