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The short answer
A UK company with naira cash, naira bank balances or naira loans records exchange gains and losses when it retranslates them at each reporting date and when they settle, generally through profit or loss under FRS 102 section 30. For corporation tax, HMRC's Corporate Finance Manual says exchange gains and losses on loan relationships are brought into account as credits and debits under section 328 of CTA 2009, with the term extended to cover foreign cash and money debts.
When the naira moves sharply against sterling, a UK company holding naira can show a large gain or loss in a month when nothing else changed. Owners are often surprised to see a loss on money that never left the account, or a taxable gain on cash they have not converted. This guide explains where those numbers come from and how they are usually taxed.
Where the gains and losses come from
HMRC's BIM39510 summarises FRS 102 section 30. Transactions are recorded at the spot rate on the day; monetary items such as naira bank balances and unpaid naira invoices are retranslated at the closing rate at each reporting date; and the differences generally go to profit or loss. Non-monetary items, such as equipment bought in naira, are not retranslated.
Worked example (illustrative)
Example, with illustrative rates only: a UK company holds ₦20,000,000 in a naira account. At the start of the year the rate is ₦2,000 to £1, so the balance is £10,000. At year end the rate is ₦2,500 to £1 and the balance, still ₦20,000,000, is worth £8,000. The accounts show an unrealised exchange loss of £2,000. If the naira had strengthened to ₦1,600, the balance would be worth £12,500 and the accounts would show a £2,500 gain, though not a single naira was converted.
How corporation tax treats them
CFM61070 says the loan relationships and derivative contracts rules bring exchange gains and losses into account as debits and credits, citing CTA 2009 sections 328 and 606. It also says the term 'loan relationship' is extended for this purpose to money debts that do not arise from lending, certain provisions and foreign cash (detailed at CFM61090).
| Naira item | Accounts (FRS 102 s.30) | Usual tax route (check with your adviser) |
|---|---|---|
| Naira bank deposit | Retranslated at closing rate; difference in profit or loss | Loan relationship exchange credit or debit |
| Naira cash | Retranslated at closing rate | Foreign cash brought within the rules (CFM61070) |
| Loan to Nigerian subsidiary | Retranslated at closing rate | Loan relationship; connected-party rules may apply (CFM61130) |
| Unpaid naira sales invoice | Retranslated while unpaid | Money debt; follows the accounts in most cases |
| Equipment bought in naira | Historical rate, not retranslated | Capital allowances on the sterling cost |
In most cases the taxable amount follows the figure in the accounts, which is why correct bookkeeping matters. There are special rules where amounts go to reserves rather than profit or loss, for shares, and for companies with a non-sterling functional currency (CFM61050), so ask your accountant if any of those apply.
Realised versus unrealised
For accounts, a realised gain arises on settlement and an unrealised gain on revaluation. For a UK company, the tax rules described above generally do not wait for realisation: an exchange credit recognised in profit or loss on a naira deposit is normally taxable in that period, and a debit is normally deductible. A company that expects naira to weaken can see deductible losses; one that holds naira through a strengthening sees taxable gains without converting.
The Nigerian side
A Nigerian subsidiary with a naira functional currency does not have exchange differences on its own naira balances. It does on any dollar or pound balances, and on intercompany loans in sterling. Its tax treatment follows Nigerian law. For a group, a sterling loan from the UK parent creates an exchange difference in one company or the other, depending on its currency: decide the loan currency deliberately. See charging interest on a loan to a Nigerian subsidiary.
What your accountant will ask for
- A list of every naira balance at the year end: bank accounts, cash, loans and unpaid invoices and bills.
- The closing rate used and where it came from.
- A split of realised and unrealised differences.
- Any loans to or from connected companies, with their currency and terms.
- Whether any exchange difference was taken to reserves rather than profit or loss.
Having this ready shortens the year-end and reduces the risk of a wrong figure in the corporation tax return.
Steps to keep it clean
- Keep each currency in its own bank account in the ledger.
- Record transactions in naira at a consistent, documented rate.
- Revalue monetary items at each reporting date and keep the closing rate source.
- Separate exchange differences from bank fees in the ledger.
- Give your accountant the list of naira balances and loans at year end, with the rates used.
For the bookkeeping mechanics, read multicurrency bookkeeping for a UK-Nigeria business. For reducing the swings, read hedging naira exposure.
Where Pryme fits
Holding naira in a Pryme Business Account gives you a clear NGN statement for revaluation. Every Swap shows the rate and fee separately, so the realised rate and the bank charge go into the ledger as two lines.
Questions people ask
Are unrealised FX gains taxable for a UK company?
For loan relationships such as bank deposits, exchange gains recognised in profit or loss are normally taxable when recognised, under CTA 2009 s.328. Check exceptions with your adviser.
Is a loss on my naira account tax deductible?
An exchange loss on a naira bank balance recognised in profit or loss is normally a deductible loan relationship debit.
Which rate do I use at year end?
The closing rate at the reporting date from a reasonable, consistent source. Keep a record of it.
Does a Nigerian subsidiary have FX gains on naira?
Not on its own naira balances if its functional currency is naira. It does on foreign-currency balances, such as a sterling loan from its parent.
Sources
- HMRC Business Income Manual BIM39510: foreign exchange, FRS 102 section 30 (updated 4 Aug 2026) · accessed Oct 2026
- HMRC Corporate Finance Manual CFM61070: exchange gains and losses on loan relationships (updated 27 Aug 2026) · accessed Oct 2026
- HMRC Corporate Finance Manual CFM61050: non-sterling functional currency (updated 27 Aug 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.