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This guidance applies to periods of account starting on or after 1 January 2015 where the company has elected for regulation 8 to apply.

Commodity contracts hedging forecast transactions

Regulation 8 applies to commodity contracts and debt contracts. It is similar to regulation 7. In cases where a company has elected for regulation 8 to apply, the regulation will have effect when the following conditions are satisfied:

• there is a hedging relationship between a commodity contract or debt contract (or part of it), and a forecast transaction or firm commitment (‘the hedged itemâ€�) of the company; and
• fair value profits or losses on the hedged item are not brought into account for the purposes of corporation tax. Here ‘fair value profits or lossesâ€� takes its normal meaning rather than the definition in regulation 2(1) which is applicable only to derivatives and loan relationships.

A commodity contract is one whose underlying subject matter is commodities; a debt contract is one whose underlying subject matter is a loan relationship (for example, an option or future over gilts). But in neither case will regulation 8 apply if the contract is an ‘interest rate contract� as defined by regulation 9(4). If the contract comes within regulation 9, that regulation takes priority.

Where a contract comes within regulation 8, fair value changes on the derivative contract are disregarded. If only part of the contract comes within the regulation, a proportionate part of the fair value profits or losses is disregarded. Regulation 10 applies to bring these amounts back into account (CFM57210).

Transitional amounts arising on first-time adoption of IFRS, New UK GAAP, or FRS 26 under Old UK GAAP, whether prior period adjustments or amounts within CTA09/S613, form part of the fair value profits or losses that are disregarded for under regulation 8, just as they are for regulation 7 (CFM57130).