Grandfathering calculations

Background

This schedule should no longer be used in new computations.

This schedule is designed to calculate the adjustments required in respect of exchange gains and losses arising on fluctuating debts that were held by the company immediately before its Commencement Day. Because the grandfathering rules apply to fluctuating debts, that are not fixed in term and fixed in amount, these therefore do not qualify for the kink test. They are kept outside the new rules for 6 years after the Commencement Date, or full repayment if earlier.

Exchange gains and losses are not tax deductible, however, only the balance outstanding on Commencement Date is eligible for grandfathering; if the debt increases after this date then it is treated a s a new debt, which falls within the new rules set out in the Finance Act 1993 and the Exchange Gains and Losses (Transitional Provisions) Regulations (SI 1994/3226) Part II; if the debt decreases, this reduces the amount eligible for grandfathering.

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Developing the schedule

Multiple copies of this schedule may be developed from the Foreign exchange gains and losses schedule.

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Completing the schedule

Each schedule will deal with the calculations required in respect of a single asset or liability. The user is required to format the currency column to the appropriate currency.

Some of the data entry cells are described in more detail:

Type

You must identify whether any gains or losses on the asset will be treated as trading or non-trading through using the Type selector.

Balance on account/grandfathered amount

In order to complete the calculations you will first need to enter the nominal balance outstanding and the amount 'grandfathered' at the beginning of the period; i.e. the lowest amount at which the debt had stood at any time on or after the company's commencement day and up to the first day of the current period.

Exchange rate

You will also need to enter the exchange rate at the beginning of the period.

All exchange rates must be entered in usual syntax, e.g. @$1.634

Advance/(repayment)

You must then enter for each increase or decrease in the nominal amount of the debt, the date on which the movement took place, the nominal amount of the increase or decrease and the exchange rate appropriate to that date. These entries must be made in date order, with each movement on a separate line.

Additional rows may be inserted and deleted as required.

Carried forward amount

The software will calculate the nominal value of the debt outstanding at the end of the period, but you will need to enter an exchange rate applicable to this date in the Exchange rate column.

Deferral claimed

In order to calculate the amount of the gain (if any) which may be deferred to a later period the software will separate the gain into realised and unrealised amounts. Finance Act 1993 s 143(3) allows the gain to be apportioned on a just and reasonable basis. The software will calculate the amount of the realised gain by calculating the weighted average cost of any reductions in the debt outstanding. The gain or loss calculated on these amount will be taken as the realised gain or loss and any balance will be treated as unrealised.

Override value for Unrealised gain(loss)

You may override this basis of apportionment by entering a value for the unrealised gain or loss in the cell at the bottom of the schedule. The difference between any amount entered here and the total gain or loss calculated will be shown as a realised gain or loss.

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Standard sub-schedules

This schedule has no standard sub-schedules.

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Carry forward

On carry forward, this schedule is automatically developed in the subsequent computation if it is present in the prior year computation. In the subsequent file, the balance on account, the grandfathered amount and the exchange rate will be entered automatically.

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Related errors

Error	How to solve it
Enter commencement date -->	User must enter the date the Company commenced in the appropriate cell.
You are advised to delete this schedule re Sixth Anniversary	Grandfathering no longer applies after the sixth anniversary of the company's commencement day. Commencement day is the start of the first accounting period to begin after 22/3/1995 (subject to any changes in the AP see SI 1994 / 3226 reg 3). User is advised to delete the schedule.
Check Grandfathering Legislation re Sixth Anniversary	As above. The current Accounting Period is greater than five years after the Company's commencement day. Need to check legislation to see if Grandfathering still applies going forward. If it does, select Yes on the "Does Grandfathering still apply?" check box. Otherwise, user is advised to delete the schedule.

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