Fatal closure notice

The taxpayer company transferred a swap contract to its sister business for £91m in August 2003 with the intention of taking advantage of a loophole in the derivatives transitional provisions in FA 2002 which changed the tax rules for the swap from an accruals basis to one centred on mark-to-market.

The new regime applied to companies’ first accounting period beginning on or after 1 October 2002. The taxpayer’s accounting year began on 1 April 2003 so was in the new regime but the sister firm’s period began on 1 September 2002 before the transfer took place.

The businesses’ aim was to rely on the rollover rule in FA 2002 sch 26 para 28 so that the £91m would disappear from the taxpayer’s accounts but not reappear in the other company’s accounts.

The First-tier Tribunal ruled for HMRC when they insisted the rollover rule did...