Pre-Budget Report – Accounting Standards for Financial Instruments
The International Accounting Standards Board is proposing a number of changes to the accounting treatment of financial instruments such as loans, securities and derivatives. The UK’s Accounting Standards Board is expected to make corresponding changes to Financial Reporting Standard (FRS) 26.
Since the tax treatment of such instruments is based on the accounting treatment, this has implications for the tax rules on loans, derivatives and repos (sale and repurchase agreements).
Legislation will be introduced in Finance Bill 2010 to respond to these changes by inserting a power to amend the loan relationships and derivative contracts rules through secondary legislation. The amendments will be limited to those necessary to ensure the rules continue to operate fairly and efficiently where companies adopt the modified accounting standards.