75Expenses of management: companies with investment business

1

In computing for the purposes of corporation tax the total profits for an accounting period of a company with investment business (see section 130) a deduction is to be allowed for any expenses of management of the company’s investment business (see subsection (4) below) which are referable to that accounting period in accordance with section 75A.

That is subject to the following provisions of this section.

2

A deduction is not to be allowed under subsection (1) above for any expenses to the extent that those expenses are deductible in computing profits apart from this section.

3

Expenses of a capital nature are not expenses of management for the purposes of this section except to the extent that they fall to be treated as expenses of management for those purposes by virtue of—

a

subsection (7) below (capital allowances), or

b

any provision of the Tax Acts, other than this section.

4

For the purposes of this section, expenses of management are “expenses of management of the company’s investment business” to the extent that—

a

the expenses are in respect of so much of the company’s business as consists in the making of investments, and

b

the investments concerned are not held by the company for an unallowable purpose during the accounting period (see subsection (5) below),

and references in this section to the company’s investment business shall be construed accordingly.

5

For the purposes of subsection (4)(b) above, investments are held by a company for an unallowable purpose during an accounting period to the extent that they are held during the period—

a

for a purpose that is not a business or other commercial purpose of the company, or

b

for the purpose of activities in respect of which the company is not within the charge to corporation tax.

6

For the purposes of subsection (1) above, there shall be deducted from the amount that would, apart from this subsection, be deductible under that subsection the amount of any income derived from a source not charged to tax—

a

which the company has in the course of carrying on its investment business, and

b

which, in a case where the company is not resident in the United Kingdom,—

i

the company has in the course of carrying on that business through a permanent establishment in the United Kingdom, and

ii

is such property or rights as are mentioned in section 11(2A)(b),

but which is not franked investment income.

7

For the purposes of this section, there shall be added to a company’s expenses of management referable to any accounting period the amount of any allowances falling to be made to the company for that period by virtue of section 15(1)(g) of the Capital Allowances Act (plant and machinery allowances) so far as effect cannot be given to them under section 253(2) of that Act.

8

Subsection (9) below applies in any case where, in an accounting period of a company with investment business, the sum of—

a

the expenses of management deductible under subsection (1) above, and

b

any charges on income paid in the accounting period, to the extent that they are paid for the purposes of so much of the company’s business as consists in the making of investments,

exceeds the amount of the profits from which those expenses and charges are deductible.

9

In any such case—

a

the excess shall be carried forward to the succeeding accounting period; and

b

the amount so carried forward to the succeeding accounting period shall be treated for the purposes of this section (including any further application of this subsection) as if it were expenses of management deductible for that accounting period.

10

Any apportionment falling to be made for the purposes of this section shall be made on a just and reasonable basis.

—

“company with investment business” means any company whose business consists wholly or partly in the making of investments;

75AAccounting period to which expenses of management are referable

1

This section has effect for the purpose of determining the accounting period to which expenses of management are referable for the purposes of section 75(1).

2

Where—

a

expenses of management are debited in accounts drawn up by a company for a period of account,

b

the treatment of those expenses in those accounts is in accordance with generally accepted accounting practice, and

c

the period of account coincides with an accounting period,

the expenses of management are referable to that accounting period.

3

Where—

a

expenses of management are debited in accounts drawn up by a company for a period of account, and

b

the treatment of those expenses in those accounts is in accordance with generally accepted accounting practice, but

c

the period of account does not coincide with an accounting period,

subsection (4) below applies.

4

Where this subsection applies, the expenses of management—

a

shall be apportioned between any accounting periods that fall within the period of account, and

b

are referable to an accounting period to the extent that they are so apportioned to it.

5

An apportionment under subsection (4) above shall be in accordance with section 834(4) (time basis) unless it appears that that method would work unreasonably or unjustly, in which case such other method shall be used as appears just and reasonable.

6

Where—

a

expenses of management are not referable to an accounting period by virtue of subsections (2) to (5) above, but

b

accounts are drawn up by the company for a period of account, and

c

if the expenses of management had been treated in those accounts in accordance with generally accepted accounting practice, they would fall to be debited in those accounts,

the expenses of management are referable to the accounting period to which they would have been referable in accordance with subsections (2) to (5) above if they had been so debited in those accounts.

7

Where expenses of management are not referable to an accounting period by virtue of subsections (2) to (6) above, they are referable to the accounting period to which they would be referable in accordance with subsections (2) to (5) above on the assumptions in subsection (8) below.

8

Those assumptions are—

a

that for each accounting period that does not coincide with, or fall within, any period of account, there is a period of account that coincides with that accounting period, and

b

that so much of the expenses of management as would fall to be debited in accordance with generally accepted accounting practice in accounts drawn up by the company for any such deemed period of account are so debited.

9

This section is without prejudice to any other provision of the Corporation Tax Acts which provides for amounts to be treated for the purposes of section 75 as expenses of management referable to an accounting period.

10

Any reference in this section to expenses of management being debited in accounts is a reference to those expenses being brought into account, in accordance with generally accepted accounting practice, as a debit—

a

in the company’s profit and loss account, or

b

in a statement of total recognised gains and losses or other statement of items brought into account in computing the company’s profits and losses for accounting purposes.

For this purpose “debit” means an amount which for accounting purposes reduces a profit, or increases a loss, for a period of account.

76Expenses 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 not charged to tax in respect of that business under Case I of Schedule D,

section 75 is not to 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.

See also subsection (14) below for the application of this section in relation to a company which carries on capital redemption business.

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 paragraph 4(2) of Schedule 11 to the Finance Act 1996 (non-trading deficits on loan relationships).

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 Case I of Schedule D 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).

7

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 in computing income for the purposes of Schedule A,

  2. b

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

  3. c

     deductible by virtue of section 121(3) in computing income from the letting of rights to work minerals in the United Kingdom.

• 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);

• section 587B(8)(b)(i) (relief for company carrying on life assurance business in relation to gifts of shares and securities);

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

• paragraph 4(4)(b) of Schedule 11 to the Finance Act 1996 (carried forward non-trading deficit on loan relationships produced by separate computation for basic life assurance and general annuity business);

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

• paragraph 23 of Schedule 22 to the Finance Act 2001 (150% relief in respect of the remediation expenditure on contaminated land owned by a company carrying on life assurance business and acquired to be a management asset);

• paragraph 13(2) of Schedule 12 to the Finance Act 2002 (125% of relevant expenditure on R&D in the case of a life assurance company);

• paragraph 23(2) of Schedule 13 to the Finance Act 2002 (150% of relevant expenditure on research into vaccines in the case of a life assurance company);

• paragraph 36(3) of Schedule 29 to the Finance Act 2002 (relief for non-trading loss on intangible fixed assets).

• 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 sum (“amount S”) of the amounts by which any losses for that period under section 436 or 439B 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 basic deduction.

• Step 9

• If—

  1. a

     amount D1 (see subsection (10) below), exceeds

  2. b

     amount R (see subsection (11) below),

• deduct an amount equal to the excess from the basic deduction.

• Step 10: the amount of the expenses deduction

• The amount of the expenses deduction is so much of the basic deduction (see Step 8) as remains after making any deduction required at Step 9.

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, or

b

the Prudential Sourcebook (Insurers).

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.

10

The amount D1 in Step 9 is the amount that would be the profits of the company’s life assurance business for the accounting period if—

a

computed in accordance with the provisions applicable to Case I of Schedule D, and

b

adjusted in respect of losses.

The adjustment in respect of losses is a deduction of the amount which, disregarding sections 434A(2) and 440B, would fall to be set off under section 393 against the company’s income for that period if the company had always been charged to tax under Case I of Schedule D in respect of its life assurance business.

11

The amount R in Step 9 (which may be a negative amount) is found for the accounting period by—

a

taking the company’s relevant income, and

b

deducting from it the relevant aggregate.

The “relevant income”is the sum of—

a

the income and gains referable by virtue of section 432A to the company’s basic life assurance and general annuity business;

b

distributions received by the company from companies resident in the United Kingdom which are referable by virtue of section 432A to its basic life assurance and general annuity business;

c

profits chargeable under Case VI of Schedule D under section 436, 439B or 441.

The “relevant aggregate”is the sum of—

a

the basic deduction (see Step 8);

b

any non-trading deficit on the company’s loan relationships which is produced for the period in relation to the company’s basic life assurance and general annuity business by a separate computation under paragraph 2 of Schedule 11 to the Finance Act 1996;

c

any amount which in pursuance of a claim under paragraph 4(3) of that Schedule is carried back to the period and (in accordance with paragraph 4(5) of that Schedule) applied in reducing profits of the company for that period.

12

Where for any accounting period—

a

the amount of the expenses deduction (see Step 10), 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 and brought into account for that period in accordance with Step 7.

13

Subject to paragraph 4(11) to (13) of Schedule 11 to the Finance Act 1996, where for any accounting period—

a

the basic deduction (see Step 8), exceeds

b

the expenses deduction (see Step 10),

the excess is to be carried forward to the next accounting period and brought into account for that period in accordance with Step 7.

14

In this section any reference to—

a

life assurance business, or

b

basic life assurance and general annuity business,

includes a reference to capital redemption business.

15

In this section—

• “capital redemption business” means any capital redemption business, within the meaning of section 458, which is business to which that section applies;

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

• and other expressions have the same meaning as in Chapter 1 of Part 12.