Income and Corporation Taxes Act 1988

76 Expenses of management: insurance companies. U.K.

(1) M1 Subject to the provisions of this section and of section 432, section 75 shall apply for computing the profits of a company carrying on life assurance business, whether mutual or proprietary, (and not charged to corporation tax in respect of it under Case I of Schedule D), whether or not the company is resident in the United Kingdom, as that section applies in relation to an investment company except that—

(a) there shall be deducted from the amount treated as the expenses of management for any accounting period the amount of any fines, fees or profits arising from reversions, and

(b) no deduction shall be made under section 75(2) [F1 ; and

(c) there shall be deducted from the amount treated as the expenses of management for any accounting period any repayment or refund (in whole or in part) of a sum disbursed by the company (for that or any earlier period) as acquisition expenses; and

[F2 (ca) there shall also be deducted from the amount treated as the expenses of management for any accounting period any reinsurance commission earned in the period which is referable to [F3 basic life assurance and general annuity business]; and]

(d) the amount treated as expenses of management shall not include any amount in respect of expenses referable to F4 . . . [F5 , pension business or overseas life assurance business]; and

(e) the amount of profits from which expenses of management may be deducted for any accounting period shall not exceed the net income and gains of that accounting period referable to [F3 basic life assurance and general annuity business];

and for this purpose “net income and gains” means income and gains after deducting any reliefs or exemptions which fall to be applied before taking account of this section.]

(2) M2 Relief in respect of management expenses shall not be given to any such company, whether under section 242 or subsection (1) above, so far as it would, if given in addition to all other reliefs to which the company is entitled, reduce the corporation tax borne by the company on the income and gains of its life assurance business for any accounting period to less than would have been paid if the company had been charged to tax in respect of that business under Case I of Schedule D.

In this subsection the references to reliefs do not include references to any set-off under section 239.

(3) M3 For the purposes of subsection (2) above—

(a) any tax credit to which the company is entitled in respect of a distribution received by it shall be treated as an equivalent amount of corporation tax borne or paid in respect of that distribution; and

(b) any payment in respect of that credit under section 242 shall be treated as reducing the tax so treated as borne or paid.

(4) In applying subsection (2) above to an accounting period in which a company—

(a) carries on any business in addition to life assurance business, or

(b) carries on both ordinary life assurance business and industrial life assurance business,

the tax that would have been paid if the company had been charged under Case I of Schedule D in respect of its life assurance business, or its life assurance business of either of those classes, shall be calculated as if any advance corporation tax set against the company’s liability to corporation tax for that accounting period were apportioned to the corporation tax attributable to each business in proportion to the profits of that business charged to corporation tax for that accounting period.

(5) M4 Where relief has been withheld in respect of any accounting period by virtue of subsection (2) above, the excess to be carried forward by virtue of section 75(3) shall be increased accordingly.

(6) M5 The relief under this section available to an overseas life insurance company (within the meaning of section 431) in respect of its expenses of management shall be limited to expenses attributable to the life assurance business carried on by the company at or through its branch or agency in the United Kingdom.

(7) M6 For the purposes of this section any sums paid by a company under [F6 (a)]a long term business levy imposed by virtue of the M7 Policyholders Protection Act 1975 [F7 or

(b) a levy imposed in pursuance of a scheme established by rules under section 54 of the 1986 Act (compensation fund for unsatisfied claims),]

shall be treated as part of its expenses of management.

[F8 (7A) The Treasury may by regulations make provision for any sums paid by a company under a prescribed levy imposed under a prescribed investor protection scheme established under the rules of a prescribed recognised self-regulating organisation to be treated for the purposes of this section as part of the company’s expenses of management; and, without prejudice to the generality of the foregoing, regulations under this subsection may, in particular—

(a) provide for only a prescribed part of any sums so paid to be so treated;

(b) provide for sums paid before, as well as after, the coming into force of the regulations to be so treated; and

(c) make different provision for different cases or in relation to different levies, schemes or organisations.]

[F9 (8) In this section—

• “the 1986 Act” means the Financial Services Act 1986;

• “acquisition expenses” means expenses falling within paragraphs (a) to (c) of subsection (1) of section 86 of the Finance Act 1989;

• “authorised person” has the same meaning as it has in the 1986 Act by virtue of section 207(1) of that Act;

• “investment business” has the same meaning as it has in the 1986 Act by virtue of section 1(2) of that Act;

• “investor” includes a person who is an investor for the purposes of the 1986 Act;

• “investor protection scheme” means a scheme established under the rules of a recognised self-regulating organisation for purposes which consist of or include the compensating of investors in cases where persons, or persons of some class or description, who are or have been authorised persons, are, or are likely to be, unable to satisfy claims in respect of any description of civil liability incurred by them in connection with their investment businesses;

• “prescribed” means specified in regulations made by the Treasury under subsection (7A) above;

• “recognised self-regulating organisation” has the same meaning as it has in the 1986 Act;

and other expressions have the same meaning as in Chapter I of Part XII.]

Textual Amendments

F1 1989 s.87(2)with respect to accounting periods beginning on or after 1January 1990 (see s.87(5)re straddling periods).

F2 1990 s.44(3)with respect to accounting periods beginning on or after 1January 1990 (see 1989 s.87(5)re straddling periods).

F3 Words in s. 76(1)(ca)(e) substituted (1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 1(a), 18

F4 Words in s. 76(1)(d) repealed (1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), ss. 48, 123, Sch. 7 paras. 1(b), 18, Sch. 19 Pt. V Note 3

F5 1990 s.42and Sch.7 para.1for accounting periods beginning on or after 1January 1990 (see para.10).Previously

“or pension business”.

F6 '(a)' in s. 76(7) inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 47(1)(with effect as mentioned in s. 47(4))

F7 Words in s. 76(7) inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 47(1)(with effect as mentioned in s. 47(4))

F8 S. 76(7A) inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 47(2)

F9 S. 76(8) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 47(3)

Modifications etc. (not altering text)

C1 See 1989 s. 44 - periods of assessment ending after 5 April 1989 involving endowments. 1989 ss. 85-88 - changes in respect of insurance companies.

C2 See the following sections of this Act:

—s.85—

profit sharing schemes.

s.88—

sums paid to Exports Credits Guarantee Dept. under investment insurance scheme.

s.90—

additional payments to redundant employees.

s.242—

set-off of losses etc., against franked investment income.

s.403—

management expenses of life assurance companies excluded from group relief.

s.573(4)—

losses on unquoted shares in trading companies allowed before charges against income of investment companies.

s.579—

deduction for statutory redundancy payments.

s.586—

disallowance of deductions for war risk premiums.

s.587—

disallowance of certain payments in respect of war injuries to employees.

s.779—

limitation on reliefs: land sold and leased back.

s.780—

land sold and leased back: relief in respect of rent under new lease.

s.781—

assets leased to traders and others: cancellation of reliefs.

s.834—

definitions of “profits” and “trade” in

s.6(4)

to apply for purposes of

s.76

C3 See S.I. 1989 No.2417 (in Part III Vol.5)for modifications applicable to life or endowment business carried on by registered friendly societies.

C4 S. 76(7) modified (31.7.1992 with effect as stated in reg. 1 of the amending instrument) by The Friendly Societies (Modification of the Corporation Tax Acts) Regulations (S.I. 1992/1655), {reg. 4}

C5 S. 76(7) amendment to earlier affecting provision S.I. 1992/1655 reg. 4 (31.12.1993 with effect as stated in reg. 1(2)(3) of the amending instrument) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 1993 (S.I. 1993/3111) {reg. 5}

Marginal Citations

M1 SOURCE-1970 s. 305(1)

M2 SOURCE-1970 s. 305(2); 1972 Sch. 18 para. 1(2)

M3 SOURCE-1972 Sch. 18 para. 1(1), (3)

M4 SOURCE-1970 s. 305(2)

M5 SOURCE-1970 s. 317

M6 SOURCE-1976 s. 47

M7 1975 c. 75.