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A UK company doing business overseas is likely to have to deal with transactions in foreign currencies, leading to foreign exchange movements where the transaction is translated into a sterling equivalent in the accounts.

Foreign exchange gains and losses can arise where the accounts of a branch are consolidated with those of the UK company, where the branch accounts are prepared in a different currency and no election has been made to exempt the branch profits and losses from UK tax (see the Foreign branch exemption ― overview guidance note). For corporation tax purposes, the profits of a UK company, including those arising overseas or in a permanent establishment, must be computed and expressed in sterling.

Exchange gains and losses can also arise:

1. •

   at an accounting period end when there is a difference in the valuation of monetary assets and liabilities between the date they are originally entered in the books during the accounting period and the end of the