PART IV PROVISIONS RELATING TO THE SCHEDULE D CHARGE

CHAPTER V COMPUTATIONAL PROVISIONS

Deductions

74 General rules as to deductions not allowable.

F1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

75Expenses of management: companies with investment business

F2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

75AF5Accounting period to which expenses of management are referable

F3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

75BF6Amounts reversing expenses of management deducted: charge to tax

F4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C1C2C4C5C676F7Expenses of insurance companies

1

In computing for the purposes of corporation tax the profits for any accounting period of a company—

a

which carries on life assurance business, and

b

which is F11charged to tax in respect of that business under the I minus E basis,

F28sections 1219 to 1223 of CTA 2009 (expenses of management of a company's investment business) do not apply in computing the profits of that business, but a deduction for expenses payable (the “expenses deduction”) is to be allowed in accordance with the following provisions of this section.

F12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

The expenses deduction is to be made from so much of the income and gains of the accounting period referable to basic life assurance and general annuity business as remains after any deduction falling to be made by virtue of F29section 388 of CTA 2009 (basic rule: deficit set off against income and gains of deficit period).

3

For the purposes of this section “expenses payable” means expenses brought into account in line 12, 22 or 25 of Form 40 (the revenue account) in the periodical return of the company for a period of account, but does not include any of the amounts falling within subsection (4), (5) or (6) below.

4

The amounts falling within this subsection are the following—

a

reinsurance premiums,

b

refunds of premiums,

c

profit commissions and profit participations (however described),

d

expenses or other amounts payable, to the extent that the company’s purpose in incurring the liability to make the payment is not a business or other commercial purpose of the company.

For the purposes of paragraph (d) above, it is not one of the business or commercial purposes of a company to incur a liability to pay an amount of commission or other expenses which exceeds the amount which it could reasonably be expected to pay if the company were charged to tax under F30section 35 of CTA 2009 (charge on trade profits) in respect of its life assurance business.

5

The amounts falling within this subsection are any amounts payable in connection with a policy or contract to—

a

a policy holder or annuitant under the policy or contract (except where the policy holder is an insurance company),

b

any other person who is entitled to receive benefits under the policy or contract,

c

any person acting on behalf of a person falling within paragraph (a) or (b) above,

d

the personal representatives of a deceased person who fell within paragraphs (a) to (c) above.

6

The amounts falling within this subsection are expenses of a capital nature.

But this subsection does not apply in the case of an amount which, by virtue of any provision of the Tax Acts other than this section, falls to be treated for the purposes of this section as expenses payable which fall to be brought into account at Step 1 in subsection (7) below (the reference to Step 1 being express in the provision).

C37

The amount of the expenses deduction for an accounting period is found by taking the following steps—

  • Step 1

  • Find so much of the expenses payable as are—

    1. a

      attributable to basic life assurance and general annuity business (see subsection (8) below), and

    2. b

      referable to the accounting period (see subsection (9) below).

  • Step 2

  • Reduce each of the amounts found at Step 1 by excluding so much of the amount as is—

    1. a

      deductible F31in computing, for corporation tax purposes, the profits of a UK property business,

    2. b

      deductible by virtue of section 85(2B) of the Finance Act 1989, F25. . .

    3. c

      deductible by virtue of F32section 272 of CTA 2009 in computing income from the letting of rights to work minerals in the United Kingdom, F26or

    4. d

      required to be deducted by subsection (9A) below.

  • Step 3

  • Find the amounts (so far as not included at Step 1) which fall to be treated for the purposes of this section as expenses payable for the accounting period by virtue of any of the following provisions—

  • section 432AB(3) (Schedule A loss or an overseas property business loss referable to basic life assurance and general annuity business);

  • section 437(1A) (relief for income element of new annuities);

  • F13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  • paragraph 16(1) of Schedule 7 to the Finance Act 1991 (transitional relief for old annuities);

  • F33. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  • section 256(2)(a) of the Capital Allowances Act (capital allowances on plant and machinery used in the management of life assurance business);

  • F33. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  • F33. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  • F13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  • F33. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  • F34section 391(3)(b) of CTA 2009 (carried forward non-trading deficit on loan relationships);

  • section 1080(2) of CTA 2009 (30% additional deduction for qualifying R&D expenditure of company carrying on life assurance business);

  • section 1161 of CTA 2009 (150% relief for remediation expenditure on contaminated land owned by company carrying on life assurance business).

  • Step 4

  • Give effect to the provisions specified in Step 3 by adding together—

    1. a

      so much of the amounts found at Step 1 as remains after making any reductions at Step 2, and

    2. b

      the amounts found at Step 3,

  • and then deduct the amount of any reversal (wherever brought into account) of an expense included at Step 1 in a previous period,

  • to give Subtotal 1.

  • Step 5

  • If the whole or any part of a loss arising to the company in respect of its life assurance business in the accounting period is set off under section 393A or 403(1)—

    1. a

      find the amount (“amount L”) that is equal to so much of the loss as, in the aggregate, is so set off,

    2. b

      find the F14 amount (“amount S”) by which any losses for that period under section F15436A fall to be reduced under section 434A(2)(b),

    3. c

      from amount L deduct amount S, to give the adjusted loss deduction,

  • then reduce Subtotal 1 by deducting from it the adjusted loss deduction,

  • to give Subtotal 2.

  • Step 6

  • Give effect to subsection (6) of section 86 of the Finance Act 1989 (spreading of acquisition expenses) by—

    1. a

      finding the amount that is equal to six-sevenths of the adjusted amount of the acquisition expenses (within the meaning of that section) for the accounting period, and

    2. b

      deducting that amount from Subtotal 2,

  • to give Subtotal 3.

  • Step 7

  • Add together the following amounts—

    1. a

      Subtotal 3, and

    2. b

      any amounts carried forward to the accounting period under subsection (12) or (13) below (unrelieved excesses from earlier accounting periods),

  • to give Subtotal 4.

  • Step 8

  • Give effect to subsections (8) and (9) of section 86 of the Finance Act 1989 (fraction of adjusted amount of acquisition expenses for earlier accounting periods) by adding together—

    1. a

      Subtotal 4, and

    2. b

      any amounts which are to be relieved under this section by virtue of those subsections,

  • to give the F16expenses deduction.

  • Step 9

    F17. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  • Step 10: the amount of the expenses deduction

    F17. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8

For the purposes of Step 1, the expenses that are attributable to basic life assurance and general annuity business are the expenses which are attributable to that business in accordance with proper internal accounting practice.

In this subsection “proper internal accounting practice” means the practice of insurance companies in allocating all the expenses of the company to particular categories of business in accordance with any applicable requirements of—

a

generally accepted accounting practice, F8. . .

b

the Prudential Sourcebook (Insurers)F9, or

c

the F10Insurance Prudential Sourcebook.

9

The following rules have effect for determining for the purposes of Step 1 the expenses that are referable to an accounting period.

Rule A

Where a period of account coincides with an accounting period, the expenses brought into account for the period of account are the expenses referable to the accounting period.

Rule B

Where—

a

two or more accounting periods fall within the same period of account, and

b

that period of account is longer than 12 months,

section 834(4) (apportionment on time basis) is to apply.

Rule C

In any other case where two or more accounting periods fall within the same period of account, the expenses referable to any of those accounting periods are the expenses that would have been referable to that accounting period if—

a

the accounting period had coincided with a period of account, and

b

a separate periodical return had been made for that period of account,

and section 834(4) (apportionment on time basis) is not to apply.

Rule D

Rules A to C are subject to any provision of the Corporation Tax Acts which provides for an amount to be treated as expenses payable for, or referable to, a particular period.

F279A

The amount required to be deducted at paragraph (d) of Step 2 is the total of the amounts (if any) arrived at under subsection (9C) below in relation to the fronting reinsurance contracts (if any) made by the company.

9B

A fronting reinsurance contract is a contract of reinsurance forming part of a fronting reinsurance arrangement; and a fronting reinsurance arrangement is an arrangement under which the company—

a

enters into a contract constituting term assurance with a person, and

b

reinsures all, or substantially all, of the liabilities under that contract with a reinsurer which—

i

does not meet the BLAGAB group reinsurance conditions in paragraph 1(3) of Schedule 19ABA to this Act, and

ii

is connected with that person or with a person entitled to commission from the company in respect of the contract.

9C

The amount referred to in subsection (9A) above in relation to any fronting reinsurance contract made by the company is the relevant reinsurance fraction of so much of the amount found at Step 1 as relates to policies and contracts which are relevant reinsured policies and contracts in relation to the fronting reinsurance contract.

9D

For the purposes of subsection (9C) above “the relevant reinsurance fraction” is—

RLTLmath

where—

RL is so much of TL as is reinsured under the fronting reinsurance contract, and

TL is the amount of the total liabilities under the relevant reinsured policies and contracts at the end of the accounting period.

9E

For the purposes of subsections (9B) and (9C) above policies and contracts are relevant reinsured policies and contracts in relation to a fronting reinsurance contract if—

a

they are attributable to the company's basic life assurance and general annuity business, and

b

any or all of the risks under them are reinsured under the fronting reinsurance contract.

10

F18. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

F18. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12

Where for any accounting period—

a

the amount of the expenses deduction (see F19Step 8), exceeds

b

the amount from which that deduction is to be made (see subsection (2) above),

the excess is to be carried forward to the next accounting period F20 for which the company is charged to tax in respect of its life assurance business under the I minus E basis and brought into account for that period in accordance with Step 7.

F2113

Where for any accounting period excess adjusted Case I profits are charged to tax under section 85A of the Finance Act 1989, an amount equal to the profits is to be carried forward to the next accounting period for which the company is charged to tax in respect of its life assurance business under the I minus E basis and brought into account for that period in accordance with Step 7.

14

F22. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15

In this section—

  • F23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  • expenses payable” has the meaning given by subsection (3) above;

F24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .