Derivatives

The rules governing the taxation of derivatives are primarily found in Part 7 of the Corporation Tax Act 2009 (CTA 2009) (CTA 2009, ss 570–710). Some secondary legislation is also relevant, notably the regulations known as the ‘Disregard Regs’ (the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004, SI 2004/3256).

The derivative contracts rules only apply to companies within the charge to UK corporation tax.

Derivatives and their uses

While certain kinds of businesses may trade or speculate in derivative instruments, derivatives are more usually held either as investments or to mitigate (ie hedge) a company’s exposure to a particular risk or potential liability, eg to changes in cash flow or in the fair value of assets, or to credit risk. Derivatives, such as options, futures and swaps can be used to smooth the volatility associated with interest rates, currency or commodity prices. In that sense, their use can provide certainty to a company in respect of its financial position, especially in relation to future liabilities.

A derivative is a contract between

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Latest Tax News

Tax weekly highlights—21 November 2024

This week's edition of Tax weekly highlights includes: (1) the Supreme Court decision in Refinitiv concerning the interaction between the diverted profits tax and an advance pricing agreement, and (2) the Supreme Court decision in Cobalt Data Centre on the scope of the enterprise zone allowance.

UT finds FTT made errors when setting aside HMRC best judgment assessment (HMRC v Sintra Global)

Tax analysis: In Sintra Global, the Upper Tribunal (UT) set aside the decision of the First-tier Tax Tribunal (FTT) insofar as it related to a notice HMRC had issued to an individual making him liable for the payment of a civil evasion penalty charged against a company he was a director of. The UT found that the FTT had failed to follow the guidance provided by the Court of Appeal in Pegasus Birds in relation to the assessment the penalty was based on.

Supreme Court rules on the scope and limitations of the enterprise zone tax incentive (R (oao Cobalt Data Centre) v HMRC)

The Supreme Court unanimously dismissed the taxpayers’ argument that the relevant expenditure fell within section 298(1) of the Capital Allowances Act 2001 (CAA 2001) and concluded that, based on the proper interpretation of that provision, the expenditure was not incurred under a contract executed prior to the conclusion of the initial ten-year period, as required. Adam Craggs, partner at RPC, discusses the implications that the judgment has on taxpayers going forward.

Consultation on expanding tax conditionality to new sectors

Environment analysis: On 30 October 2024, HM Revenue and Customs (HMRC) issued a consultation on ‘Tackling the hidden economy: expanding tax conditionality to new sectors’. The consultation runs to 21 January 2025. Angus Evers, partner at Shoosmiths, comments on the consultation.