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Where a company is a party to a currency contract, a commodity contract, or a debt contract which it uses to hedge a forecast transaction or a firm commitment, the normal rule is that any profits or losses arising on the contract and any transitional adjustments arising in respect of the contract will be brought into account for tax purposes at the earlier of the time that the company ceases to be a party to the contract or at the time when the hedged item begins to affect the company's profit or loss¹.

This rule is modified where the forecast transaction or firm commitment is a forecast transaction or a firm commitment in relation to expenditure which would be taken into account in computing the profits of the company's trade or property business². In such cases the net profit or loss arising on the contract is brought into account in the accounting period in which the expenditure falls, or in the case of capital expenditure,