Corporation Tax Act 2009 section 661

Contract which becomes derivative contract

Section 661 deals with what happens when a company holds a contract that was not originally a derivative contract but subsequently becomes one, and how any latent gain or loss is brought into account.

• Where a relevant contract that is a chargeable asset becomes a derivative contract, the company must account for any chargeable gain or allowable loss that has built up
• The gain or loss is calculated by assuming the company disposed of the contract immediately before it became a derivative, for its notional carrying value at that time
• Recognition of the gain or loss is deferred until the company actually ceases to be a party to the relevant contract
• The notional carrying value is the carrying value the contract would have had in the company's accounts if a period of account had ended immediately before the deemed disposal