Commentary on Sections Overview Chapter 4: Further provision about credits and debits to be brought into account Section 617: Election for section 616 not to apply
1682.This section allows a company to elect that section 616 does not apply to its contracts. It is based on paragraph 45L(2A), (2B) and (2C) of Schedule 26 to FA 2002.
1683.For some companies the benefit afforded by section 616 may be disproportionate to the administrative and accounting burden of distinguishing and tracking affected contracts. Or the degree of volatility in the tax consequences of splitting the contract or using fair value accounting may be acceptable to the company holding the contract.
1684.An election under this section applies to all of a company’s contracts. Section 618 contains further provisions modifying or extending the effect of an election made by a member of a group of companies.
1685.Subsection (2) excludes two types of contract from an election. They are, first, a “contract of long-term insurance” (defined in section 431(2) of ICTA) and, second, a contract where the embedded derivative identified by section 584 or 586 has commodities as its underlying subject matter.
1686.Subsection (2)(b) says “embedded derivative” rather than “embedded derivative contract”. The Finance Act 2002, Schedule 26, (Parts 2 and 9) (Amendment) Order 2006, SI 2006/3269 omitted the definition of “embedded derivative contract” from the source legislation. But the use of the term in paragraph 45L(2A) of Schedule 26 to FA 2002 was missed. “Embedded derivative” matches the amendments introduced in this respect by that Order. See in particular sections 584 and 586.
1687.Unlike the source legislation, the section does not specify how the election must be made. See Change 1 in Annex 1.