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Example

A company has a Euro functional currency. Its results are as follows:

Y/e 31 December 2018: Trading Loss - �50m

Y/e 31 December 2019: Trading Profit - �30m

During both accounting periods, the company’s results relate to numerous transactions and it is considered that the ‘appropriate exchange rateâ€� should be the average exchange rate for the accounting period. »Ê¹ÚÌåÓýapp relevant average £/â‚� exchange rates are:

Y/e 31 December 2018 - 1:1.4

Y/e 31 December 2019 - 1:1.2

In 2018, there is a trading loss and there is no need to translate that loss into sterling for tax purposes in that year. »Ê¹ÚÌåÓýapp loss will not be translated into sterling until it is offset against profits in a different accounting period.

In 2019, the profit of â‚�30m will need to be translated into sterling. In the absence of any losses this would give a sterling profit of £25m (â‚�30m @ 1:1.2). »Ê¹ÚÌåÓýapp trading loss carried forward will be translated into sterling at the same exchange rate as the profit that it is offsetting, i.e. 1:1.2. As this is the same translation rate as the profit, this would mean that â‚�30m of loss carried forward is required to offset the â‚�30m profit.

»Ê¹ÚÌåÓýapp result would be the same, irrespective of the exchange rate in 2019. In effect, the losses are ‘heldâ€� and offset in their currency of origination.

�20m of trading loss is then available to be carried forward against future profits. This loss will not be translated into sterling until it is utilised in a different accounting period.