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Finance (No. 3) Bill

The amendments will ensure that clauses 34 and 48 operate as intended when companies make retrospective changes to the dates to which their accounts are drawn up. Schedule 7 allows companies to elect prospectively to change the currency in which they prepare their accounts for tax purposes. That is often referred to as their functional currency. That change must be prospective to prevent companies from changing their functional currency with the benefit of hindsight to realise a foreign exchange loss for tax purposes. Following the Public Bill Committee debate on clause 34, a major accountancy firm disclosed an avoidance scheme that retrospectively creates a short accounting period to circumvent the new rules. The amendments will ensure that clause 34 operates as intended when a company retrospectively changes the date to which its accounts are drawn up. Clause 48 and schedule 13 implement an optional branch exemption regime. Companies must elect into branch exemption in advance of an accounting period to prevent them from leaving known losses outside of exemption in order to retain loss relief. Retrospective accounting period changes create problems similar to those that arise in connection with clause 34, whereby decisions on election into branch exemption may be made with the benefit of hindsight. The amendments will ensure that clause 48 operates as intended when a company changes its accounting periods. In each case, the date on which an election comes into force will be fixed in advance at the time when the election is made. The amendments that relate to clause 34 will protect the £60 million yield in the original measure, and together the amendments will protect an estimated £200 million that would otherwise be likely to be lost due to avoidance schemes. They will ensure that clauses 34 and 48 operate as intended when a company uses hindsight to alter its accounting periods. I therefore urge the House to accept them.