Corporation Tax Act 2009

Chapter 10 Insurance companies

Introduction

386 Overview of Chapter

(1) This Chapter contains special rules about the treatment of the loan relationships of insurance companies.

(2) In particular, it—

(a) provides for special rules to apply in relation to an insurance company’s non-trading deficits referable to BLAGAB instead of those in Chapter 16 (see sections 387 to 391),

(b) excludes some loan relationships of corporate members of Lloyd’s from this Part (see section 392), and

(c) provides for the determination of questions concerning how far certain matters are referable to any particular category of a company’s long-term business (see sections 393 and 394).

(3) For further special rules affecting insurance companies, see—

(a) section 298(3) (under which activities carried on by a company in the course of mutual insurance business which is not life assurance business or of BLAGAB are treated as not constituting a trade or part of a trade),

(b) Chapter 4 (continuity of treatment on transfers within groups or on reorganisations), and, in particular, sections 335(1) and (2), 336(4) and 337,

(c) section 405 (certain non-UK residents with interest on 3½% War Loan 1952 Or After),

(d) sections 468 and 471 (connection between creditor and debtor companies to be ignored in some cases where creditor is insurance company carrying on BLAGAB),

(e) section 483(6) (treatment of deferred acquisition costs and provision for unearned premiums or for unexpired risks as a money debt for the purposes of Chapter 2 of Part 6 in the case of companies carrying on insurance business), and

(f) section 486(4) (no exchange gains or losses to arise for the purposes of that Chapter where relevant debts prevented from being deductible as expenses of insurance companies at Step 1 of section 76(7) of ICTA).

(4) In this Chapter “BLAGAB” means basic life assurance and general annuity business.

Treatment of deficit on basic life assurance and general annuity business

387 Treatment of deficit on basic life assurance and general annuity business: introduction

(1) Sections 388 to 391 apply instead of Chapter 16 (non-trading deficits) if a company has a non-trading deficit from its loan relationships for BLAGAB for any accounting period.

(2) In those sections “the deficit” and “the deficit period” mean that deficit and that period respectively.

388 Basic rule: deficit set off against income and gains of deficit period

(1) The basic rule is that the deficit must be set off against any income and gains of the deficit period which are referable to BLAGAB.

(2) The income and gains are reduced accordingly.

(3) Any such reduction is made before any expenses deduction under section 76 of ICTA (expenses of insurance companies).

389 Claim to carry back deficit

(1) If the deficit exceeds the income and gains for the deficit period referred to in section 388(1), the company may make a claim for the whole or part of the excess (“the claim amount”)—

(a) to be carried back for up to 3 accounting periods ending within the permitted period, and

(b) to be set off against the available profits of the company in those periods in accordance with subsection (2).

(2) The claim amount reduces the company’s available profits in the most recent accounting period of the company, before any remainder reduces those in the next most recent accounting period and then those in the next most recent accounting period.

(3) For the meaning of “available profits”, see section 390.

(4) In this section and that section “permitted period” means the period of 12 months immediately before the deficit period.

(5) A claim under this section must be made—

(a) within the period of 2 years after the end of the deficit period, or

(b) within such further period as an officer of Revenue and Customs allows.

390 Meaning of “available profits”

(1) For the purposes of section 389 the available profits of the company for an accounting period are its BLAGAB non-trading loan relationships profits for the period (see subsection (4)), less the unused part of the relevant deductions for the period (see subsection (5)).

(2) If an accounting period ending within the permitted period begins before it, only a part of the amount which would otherwise be the available profit for that accounting period is available profit.

(3) That part is so much as is proportionate to the part of the accounting period in the permitted period.

(4) References in this section to a company’s BLAGAB non-trading loan relationships profits for an accounting period are references to the amount (if any) which is chargeable to tax for that period under section 299 (charge to tax on non-trading profits) for the company’s BLAGAB.

(5) The unused part of the relevant deductions for an accounting period is found as follows.

• Step 1

  Add together—

  (a)

  so much of the expenses deduction for the period given by Step 8 in section 76(7) of ICTA (expenses of insurance companies) as is referable to BLAGAB, and

  (b)

  so much of the sum of the deductions made in the case of the company in respect of charges on income for that period as is so referable.

• Step 2

  Add together—

  (a)

  the total amounts so referable which could be applied for the period in making deductions as a result of section 76 of ICTA if the company’s BLAGAB non-trading loan relationships profits for the period were disregarded, and

  (b)

  the total amounts so referable which could be applied for the period in making deductions in respect of charges on income if those profits were disregarded.

• Step 3

  Subtract the amount found at Step 2 from the amount found at Step 1.

  The result is the unused part of the relevant deductions for the accounting period.

(6) In the case of any claim under section 389, the reference in Step 1(a) in subsection (5) to the expenses deduction for an accounting period given by Step 8 in section 76(7) of ICTA and the reference in Step 2(a) in subsection (5) to the deduction for expenses as a result of section 76 of ICTA for an accounting period are references to the deduction for expenses that would have been made as a result of that section for that period on the assumptions in subsections (7) and (8).

(7) The first assumption is that no account is taken of—

(a) that claim, or

(b) any other claim under section 389 relating to a deficit for an accounting period after the deficit period.

(8) The second assumption is that all such adjustments are made as are required as a result of any sum having been carried back under the Corporation Tax Acts to the accounting period mentioned in subsection (5), otherwise than as a result of—

(a) the claim mentioned in subsection (6), or

(b) any such other claim as is mentioned in subsection (7)(b).

391 Carry forward of surplus deficit to next accounting period

(1) This rule applies if any of the deficit is not—

(a) set off against the income and gains referred to in section 388(1), or

(b) set off against the profits referred to in section 389(1) as the result of a claim under that section.

(2) That deficit must be carried forward to the accounting period immediately after the deficit period (“the next period”).

(3) Any deficit so carried forward is treated for the purposes of the Corporation Tax Acts (including sections 388 to 390) as expenses payable which—

(a) are referable to the next period, and

(b) are to be brought into account at Step 3 in section 76(7) of ICTA (expenses of insurance companies).

Exclusion of loan relationships of members of Lloyd's

392 Exclusion of loan relationships of members of Lloyd's

(1) This section applies to any loan relationship of a corporate member of Lloyd's.

(2) This Part does not apply as respects the relationship so far as rights or liabilities under it or securities representing it are—

(a) assets forming part of the member’s premium trust fund, or

(b) liabilities attached to that fund.

(3) In this section “corporate member” and “premium trust fund” have the same meaning as in Chapter 5 of Part 4 of FA 1994 (Lloyd’s underwriters: corporations etc) (see section 230(1) of that Act).

Determination of questions requiring apportionments

393 General rules for some debtor relationships

(1) This section applies if a debtor relationship of an insurance company is represented by a liability which is a liability of its long-term insurance fund.

(2) Any question arising for the purposes of the Corporation Tax Acts as to how far any credits or debits given for the purposes of this Part in respect of the liability are referable to any particular category of the company’s long-term business is determined as follows.

(3) In the case of credits and debits within the rules in section 394, that section applies.

(4) In the case of other credits and debits, the relevant fraction of the credits or debits is referable to a category of long-term business.

(5) That fraction is determined by applying section 432A(6) to (6B) and (8) of ICTA (apportionment of income and gains) as if—

(a) the credits or debits were income not directly referable to any category of business, and

(b) the references in section 432A(6) to assets directly referable to a category of business were references to assets linked to that category.

394 Special rules for some debtor relationships

(1) This section sets out the rules referred to in section 393(3) as to how far certain credits or debits given for the purposes of this Part in respect of liabilities representing a debtor relationship of an insurance company which are liabilities of its long-term insurance fund are referable to any particular category of its long-term business.

(2) If the liabilities are liabilities of an internal linked fund of the company relating to one category of long-term business, the credits or debits are referable to that category.

(3) If the liabilities are liabilities of an internal linked fund of the company relating to two or more such categories, the credits or debits are referable to those categories in the same proportions as the linked assets in the fund are apportioned to them under section 432ZA(4) of ICTA (linked assets).

(4) If—

(a) the liabilities arise from deposit back arrangements, and

(b) the business reinsured by the arrangements under which the deposit back arrangements are made (“the reinsurance arrangements”) is within one category of long term business,

the credits or debits are referable to that category.

(5) If—

(a) the liabilities arise from deposit back arrangements, and

(b) the business reinsured by the reinsurance arrangements is within two or more such categories,

the credits or debits are referable to those categories in the same proportions as the relevant proportions of the liabilities reinsured by the arrangements which are liabilities relating to those categories.

(6) For the purposes of subsection (5) “relevant proportion”, in relation to reinsured liabilities of any particular category of business, means the average of—

(a) the proportion of all the reinsured liabilities that are liabilities relating to that category at the beginning of the period of account, and

(b) the proportion of all the reinsured liabilities that are liabilities relating to that category at the end of that period.

(7) Debits relating to interest payable in respect of the late payment of any benefits are referable to the category of long-term business that comprises the effecting and carrying out of the policies or contracts under which the benefits are payable.