The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 1995

Explanatory Note

(This note is not part of the Regulations)

These Regulations amend the Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1992 (S.I. 1992/1655, amended by S.I. 1993/3111) (“the principal Regulations”).

Regulation 1 provides for citation and commencement, and regulation 2 contains definitions.

The remaining regulations make amendments to the principal Regulations.

Regulation 3 inserts two new definitions in regulation 2 of the principal Regulations.

Regulation 4 inserts a number of new regulations (3A to 3L) in the principal Regulations.

As a result of the enactment of section 29 of the Finance Act 1966 which, for the first time, made friendly societies taxable in respect of certain categories of life or endowment business, it became possible for a friendly society to carry on both taxable business and tax exempt business. The new inserted regulations make provision for the apportionment of certain items so that only the part referable to taxable business constitutes an allowable deduction in computing a friendly society’s taxable profits. Provision is made in respect of all accounting periods ending on or after 4th May 1966 (the date when certain categories of life or endowment business first became taxable) as tax liabilities for past accounting periods may still be unsettled, and there may be circumstances in which deductions can be carried forward without limit of time and without the necessity to make a claim. The items in question are capital allowances on machinery and plant (the subject of regulations 3A, 3D and 3E), management expenses (the subject of regulations 3B, 3C and 3G to 3L) and annuity business (the subject of regulations 3B and 3F).

Regulation 5 amends regulation 8 of the principal Regulations to take account of an amendment to the Friendly Societies Act 1992.

Regulation 6 inserts three new regulations (10A to 10C) in the principal Regulations.

The inserted regulations 10A and 10B make provision in relation to annuity business in the same manner as the new inserted regulations 3B and 3F.

The new inserted regulation 10C prescribes modification of section 440 of the Income and Corporation Taxes Act 1988 (“the Taxes Act”), and applies in a case where, on or after 1st January 1990, a non-directive society becomes a directive society or is required, pursuant to conditions imposed by virtue of section 37(8) of the Friendly Societies Act 1992, to separate its long term business fund from other funds. In such a case a charge to corporation tax on chargeable gains could arise under section 440 of the Taxes Act because assets fall to be classified according to different categories. The modifications of section 440 made by this regulation prevent such a charge from arising.

Regulation 7 amends regulation 18 of the principal Regulations to enable decreases as well as increases in the value of the assets of the society’s long-term business fund to be brought into account in computing the society’s profits in respect of its life assurance business.

Regulation 8 inserts a new regulation 18A in the principal Regulations. The new regulation make provision in relation to capital allowances in the same manner as the new inserted regulations 3A and 3D.

Regulation 9 inserts two new regulations (19A and 19B) in the principal Regulations. The new regulations prescribe modifications of paragraphs 1 and 3 of Schedule 8 to the Finance Act 1990, so that those provisions apply to the taxable basic life assurance and taxable general annuity business of friendly societies.

Regulation 10 inserts a new paragraph 20A in the principal Regulations. The new regulation prescribes a modification of paragraph 16 of Schedule 7 to the Finance Act 1991, so that the corporation tax relief available to friendly societies for annuity contracts taken out before 1st January 1992 is confined to those contracts referable to taxable general annuity business.

Regulation 11 substitutes a new regulation 21 in the principal Regulations. Regulation 21 prescribed modifications of section 212 of the Taxation of Chargeable Gains Act 1992 (“the 1992 Act”), and the substituted regulation contains provisions which take account of legislative amendments to that section. The substituted regulation has effect for accounting periods of incorporated friendly societies beginning on or after 19th February 1993 and for accounting periods of friendly societies other than incorporated friendly societies beginning on or after 1st January 1993.

Regulation 12 inserts three new regulations (21A to 21C) in the principal Regulations. These new regulations prescribe modifications of sections 213A, 214 and 214A of the 1992 Act so that those provisions apply to the taxable basic life assurance and general annuity business of friendly societies. The new regulations 21A and 21C have effect for accounting periods of incorporated friendly societies beginning on and after 19th February 1993 and for accounting periods of friendly societies other than incorporated friendly societies beginning on or after 1st January 1993, and the new regulation 21B has effect for accounting periods of friendly societies beginning on or after 6th April 1992.

Regulation 13 provides for regulation 19 of the principal Regulations, which made modifications to section 46 of the Finance Act 1990, to be revoked. Subsequent legislation resulted in section 46 never taking effect, and the section has now been repealed.

Authority for the retrospective effect of these Regulations is given by section 463(4) of the Taxes Act.