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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. Ìý

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

2. Ìý

   •ÌýÌýÌýÌý 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 rules¹ (see Division D1.7) or the derivative contract rules² (see Division D1.8).

Different rules, described below, apply to unincorporated businesses, including partnerships in which at least one individual is a partner.