The Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1992

Explanatory Note

(This note is not part of the Regulations)

Section 463(1) of the Income and Corporation Taxes Act 1988 (“the Taxes Act”) (as renumbered by section 50(1) of the Finance Act 1990) provides that the Corporation Tax Acts shall apply to the non-tax exempt life or endowment business carried on by registered friendly societies in the same way as they apply to mutual life assurance business carried on by insurance companies; but gives the Treasury power to provide by regulations that those Acts as so applied are to have effect subject to such modifications and exceptions as may be prescribed by the regulations. Section 463(4) of the Taxes Act (added by section 50(2) of the Finance Act 1990) provides for regulations under section 463 to make different provision for different cases.

These Regulations exercise the powers contained in section 463 of the Taxes Act to prescribe various modifications to and exceptions from the Corporation Tax Acts.

Registered friendly societies with an annual contribution income of more than 500,000 ECU are subject to the provisions of the Council Directive (79/267/EEC) on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of direct life assurance. The Council Directive was implemented for these friendly societies by the Friendly Societies (Long Term Insurance Business) Regulations 1987 (S.I. 1987/2132). A registered friendly society subject to the Council Directive and to the 1987 Regulations is called a “directive society” in these Regulations; a registered friendly society not so subject is called a “non-directive society”. These Regulations make different provision for directive societies and non-directive societies on a number of occasions, as the affairs of directive societies are regulated to a greater extent.

Regulation 1 provides for citation, commencement and effect, regulation 2 contains definitions, and regulation 3 is introductory.

Regulation 4 prescribes a modification of section 76(7) of the Taxes Act so as to provide that levies paid by friendly societies under arrangements approved by the Chief Registrar of Friendly Societies, or the Registrar of Friendly Societies for Northern Ireland under the Financial Services Act 1986 (c. 60) are to be treated as expenses of management in the same way as long term business levies imposed on insurance companies by virtue of the Policyholders Protection Act 1975 (c. 75).

Regulation 5 prescribes modifications of section 431(2) of the Taxes Act which contains definitions for the purposes of the provisions of that Act that apply to insurance companies. The modifications include the insertion of definitions of “directive society” and “non-directive society”, and the substitution of a new definition of “periodical return”, as returns required from registered friendly societies differ from those required from insurance companies.

Regulations 6 and 7 prescribe modifications of section 432A of the Taxes Act. Regulation 6 applies to income arising and disposals occurring on or after 1st January 1990 to ensure that taxable general annuity business, tax exempt general annuity business, taxable basic life assurance business and tax exempt basic life assurance business are all distinguished when apportioning income and gains. Regulation 7 applies to accounting periods beginning on or after 1st January 1992 to ensure that taxable basic life assurance and general annuity business and tax exempt basic life assurance and general annuity business are similary distinguished.

Regulation 8 prescribes further modifications of section 432A of the Taxes Act in relation to non-directive societies.

Regulation 9 prescribes modifications of section 432B of the Taxes Act in relation to directive societies by substituting a reference to the Friendly Societies Act 1974 or to the Friendly Societies Act (Northern Ireland) 1970 for the reference to the Insurance Companies Act 1982 (c. 50).

Regulation 10 excepts non-directive societies from sections 432B to 432E of the Taxes Act. These sections contain detailed provisions for apportionments which are inappropriate in the case of these societies.

Regulations 11 and 12 prescribe modifications of section 440(4) of the Taxes Act and regulations 14 and 15 prescribe modifications of section 440A(2) of that Act. Regulations 11 and 14 apply to accounting periods beginning before 1st January 1992 to ensure that assets relating to taxable basic life assurance business are distinguished from assets relating to tax exempt basic life assurance business; and regulations 12 and 15 apply to accounting periods beginning on or after 1st January 1992 to ensure that assets relating to taxable basic life assurance and general annuity business are distinguished from assets relating to tax exempt basic life assurance and general annuity business.

Regulations 13 and 16 except non-directive societies from sections 440(4)(d) and 440A(2)(d) of the Taxes Act respectively. Non-directive societies are not required to maintain the long term business fund mentioned in these provisions.

Regulation 17 prescribes modifications of section 82 and regulation 18 of section 83(2) of the Finance Act 1989. Both provisions are concerned with the profits of an insurance company in respect of its life assurance business: section 82 with the calculation of profits and section 83(2) with the receipts to be brought into account. In each case different modifications are prescribed for directive societies and for non-directive societies. The annual return mentioned in regulation 18 may be obtained from the Registry of Friendly Societies, 15 Great Marlborough Street, London W1V 2AX.

Regulation 19 is concerned with section 46 of the Finance Act 1990 and provides for a number of modifications to ensure that this section applies only to taxable business for accounting periods beginning on or after 1st January 1992. Section 212 of the Taxation of Chargeable Gains Act 1992 has subsequently replaced section 46 of the Finance Act 1990. Regulation 21 is concerned with section 212 of the 1992 Act and provides modifications corresponding to those in regulation 19 for accounting periods beginning on or after 6th April 1992.

Regulation 20 prescribes modifications to the transitional provisions contained in paragraph 6 of Schedule 7 to the Finance Act 1991.

Regulation 22 revokes the Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1989, and deems those Regulations (which came into force on 1st January 1990) never to have had effect. The modifications to the Corporation Tax Acts prescribed in the 1989 Regulations have either been continued in these Regulations (at regulation 4) or have been further amended (at regulations 17 and 18).

These Regulations have effect, except as otherwise provided, for accounting periods beginning on or after 1st January 1990. Authority for the retrospective effect of these Regulations is given by section 463(4) of the Taxes Act.