Corporation Tax Act 2009 section 707

"Hedging relationship"

Section 707 defines what constitutes a "hedging relationship" between a derivative contract and an asset or liability for the purposes of the derivative contracts rules in this Part of the Act.

• A hedging relationship exists where a company formally designates a relevant contract as a hedge of a particular asset or liability, or where the contract is intended to hedge exposure to fair value changes attributable to a specific risk that could affect profit or loss.
• The contract used as the hedge is called the "hedging instrument" and the asset or liability being protected is called the "hedged item".
• Where the hedge is not formally designated, the hedged item must be an asset or liability recognised for accounting purposes, or an identified portion of such an asset or liability.
• For these purposes, a company's own share capital is treated as one of its liabilities, meaning it can be a hedged item.