The Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1997

““; and in paragraph (d) above “tax exempt basic life assurance and general annuity business” means basic life assurance and general annuity business the profits arising from which fall to be exempted from tax by virtue of section 460(1)9, and for the purposes of this definition it shall be assumed that the friendly society has made a claim for exemption from tax under that provision”.”

“(a)

a levy imposed by virtue of arrangements approved by the Friendly Societies Commission under section 141 of the 1986 Act, or”.

““liabilities”—

(a)

in relation to a directive society, means the liabilities of the society estimated as for the purposes of its valuation report (excluding any that have fallen due or been reinsured and any not arising under or in connection with policies or contracts effected as part of the society’s insurance business); and

(b)

in relation to a non-directive society—

(i)

means, in the case of a society which has sent a valuation report as at the end of an accounting period to the Friendly Societies Commission, the liabilities of the society estimated as for the purposes of its valuation report (excluding any that have fallen due or been reinsured and any not arising under or in connection with policies or contracts effected as part of the society’s insurance business), and

(ii)

means, in the case of a society which has not sent a valuation report as at the end of an accounting period to the Friendly Societies Commission but has caused the actuary to the society to prepare a report on the same basis as the actuary’s report referred to in section 47(2) of the Friendly Societies Act 1992, the liabilities of the society estimated as for the purposes of that report (excluding any that have fallen due or been reinsured and any not arising under or in connection with policies or contracts effected as part of the society’s insurance business), and

(iii)

means, in any other case, the liabilities of the society ascertained in accordance with subsections (7) to (10) below;”.

““long term business” shall be construed in accordance with section 117 of the Friendly Societies Act 199211;”.

““periodical return”—

(a)

in the case of a directive society, means—

(i)

the abstract of the actuary’s report referred to in section 46(3) of the Friendly Societies Act 1992, and

(ii)

all forms completed in accordance with the Friendly Societies (Insurance Business) Regulations 199412; and

(b)

in the case of a non-directive society, means its valuation report;”.

““value”—

(a)

in relation to the assets of a directive society, means the value of the assets as taken into account for the purposes of the society’s periodical return; and

(b)

in relation to the assets of a non-directive society—

(i)

means, in the case of a society which has sent a valuation report as at the end of an accounting period to the Friendly Societies Commission, the value of the assets as taken into account for the purposes of its valuation report,

(ii)

means, in the case of a society which has not sent a valuation report as at the end of an accounting period to the Friendly Societies Commission but has caused the actuary to the society to prepare a report on the same basis as the actuary’s report referred to in section 47(2) of the Friendly Societies Act 1992, the value of the assets as taken into account for the purposes of that report, and

(iii)

means, in any other case, the value of the assets ascertained in accordance with subsections (11) to (14) below;”.

“(7)

For the purposes of paragraph (b)(iii) of the definition of “liabilities” in subsection (2) above the closing liabilities of a society for an accounting period (“the relevant accounting period”) shall be ascertained in accordance with the formula—

$\mathrm{L1}+((\mathrm{L2}-\mathrm{L1})\times \genfrac{}{}{0.1ex}{}{\mathrm{T1}}{\mathrm{T2}})$

where—

• L1 is the liabilities as at the end of the last accounting period (“the preceding accounting period”) which precedes the relevant accounting period and for which a relevant report is drawn up;

• L2 is the liabilities as at the end of the first accounting period (“the subsequent accounting period”) which follows the relevant accounting period and for which a relevant report is drawn up;

• T1 is the number of days from the end of the preceding accounting period to the end of the relevant accounting period;

• T2 is the number of days from the end of the preceding accounting period to the end of the subsequent accounting period;

and where the formula is used to ascertain the closing liabilities for an accounting period, the liabilities so ascertained shall be the opening liabilities for the next accounting period.

(8)

Where, for those purposes, it is necessary to ascertain the liabilities in any case where a relevant report has not been drawn up at the end of the relevant accounting period, the liabilities shall be estimated on a basis compatible with that used in the previous relevant report, having regard to any changes in the nature or extent of the society’s business since that report.

(9)

In any case where subsection (8) above has applied, subsection (7) above shall apply as soon as the society is able to ascertain the closing liabilities in accordance with the formula set out in that subsection; and all such adjustments to the liability to tax of the society shall be made, whether by assessment or otherwise, as may be required to give effect to subsection (7) above.

(10)

In subsections (7) and (8) above a “relevant report” means a valuation report or the report specified in paragraph (b)(ii) of the definition of “liabilities” in subsection (2) above.

(11)

For the purposes of paragraph (b)(iii) of the definition of “value” in subsection (2) above the value of the assets of a society as at the end of an accounting period (“the relevant accounting period”) shall be ascertained in accordance with the formula—

$\mathrm{V1}+((\mathrm{V2}-\mathrm{V1})\times \genfrac{}{}{0.1ex}{}{\mathrm{T1}}{\mathrm{T2}})$

where—

• V1 is the value of the assets at the end of the last accounting period (“the preceding accounting period”) which precedes the relevant accounting period and for which a relevant report is drawn up;

• V2 is the value of the assets as at the end of the first accounting period (“the subsequent accounting period”) which follows the relevant accounting period and for which a relevant report is drawn up;

• T1 is the number of days from the end of the preceding accounting period to the end of the relevant accounting period;

• T2 is the number of days from the end of the preceding accounting period to the end of the subsequent accounting period;

and where the formula is used to ascertain the value of the assets as at the end of an accounting period, the value so ascertained shall be the value of the assets at the beginning of the next accounting period.

(12)

Where, for those purposes, it is necessary to ascertain the value of the assets in any case where a relevant report has not been drawn up at the end of the relevant accounting period, the value of the assets shall be estimated on a basis compatible with that used in the previous relevant report, having regard to any changes in the nature or extent of the society’s business since that report.

(13)

In any case where subsection (12) above has applied, subsection (11) above shall apply as soon as the society is able to ascertain the value of the assets in accordance with the formula set out in that subsection; and all such adjustments to the liability to tax of the society shall be made, whether by assessment or otherwise, as may be required to give effect to subsection (11) above.

(14)

In subsections (11) and (12) above a “relevant report” means a valuation report or the report specified in paragraph (b)(ii) of the definition of “value” in subsection (2) above.”

““tax exempt class IV business” means—

(a)

business specified in section 466(1)(d)13 the profits arising from which are exempt from tax by virtue of section 460(1), and

(b)

business other than that specified in section 466(1)(d) the profits arising from which are exempt from tax by virtue of section 461(1) or 461B(1)14;

“taxable class IV business” means business specified in section 466(1)(d) other than tax exempt class IV business;”.

“(3)

Where a friendly society carries on both tax exempt class IV business and taxable class IV business, the business of each such category shall, for the purposes of the Corporation Tax Acts, be treated as though it were a separate business.”

“(1A)

Subsections (1B) to (1D) below apply where a friendly society with branches carries on more than one category of business.

(1B)

In a case where—

(a)

the society has caused the actuary to the society to prepare, as at the end of an accounting period and as at the end of the previous accounting period, reports prepared on the same basis as the society’s valuation report but which are limited to an investigation of the matters referred to in section 46(5) of the Friendly Societies Act 1992 in relation to the central body of the society (and not to any of its branches), and

(b)

the society so chooses,

the apportionment of the income, gains or losses of the central body shall be determined by reference to the liabilities and the value of the assets estimated for the purposes of those reports.

(1C)

Subject to subsection (1B) above, the apportionment shall be of the income, gains or losses of the society, together with all its branches.

(1D)

Where, by virtue of this section, income, gains or losses are referable to any of the following categories, namely—

(a)

pension business,

(b)

taxable basic life assurance and general annuity business, or

(c)

taxable class IV business,

that income, or those gains or losses, shall be attributable to the central body of the society and not to any of its branches unless the society shows that any business within any of those categories was written by a branch, in which case the income, gains or losses referable to any of those categories shall be attributed to any such branch in such manner as is just and reasonable.”

“(1E)

In a case where, in relation to any period, the Friendly Societies Commission, acting under subsection (10) of section 47 of the Friendly Societies Act 1992, has dispensed with the requirement that a society shall cause such an abstract as is mentioned in subsection (2) of that section to be made and sent to the Commission, the definitions of “liabilities” and “value” in section 431(2) shall not apply; and any apportionment required by this section shall be made in such manner as is just and reasonable.”

“(d)

taxable basic life assurance and general annuity business which is not industrial assurance business;

(da)

tax exempt basic life assurance and general annuity business which is not industrial assurance business;

(e)

taxable basic life assurance and general annuity business which is industrial assurance business;

(ea)

tax exempt basic life assurance and general annuity business which is industrial assurance business; and”.

“(d)

taxable basic life assurance and general annuity business;

(da)

tax exempt basic life assurance and general annuity business;”.

“(f)

taxable class IV business; and

(fa)

tax exempt class IV business.”

“(6)

For the purposes of subsection (5) above “the relevant fraction”, in relation to a category of business, is the fraction of which—

(a)

the numerator is the mean of the opening and closing liabilities of the category, reduced by the mean of the opening and closing values of any assets directly referable to the category; and

(b)

the denominator is the mean of the opening and closing liabilities of the long term business, reduced by the mean of the opening and closing value of any assets directly referable to any category of business.”

“(11)

In subsection (1) above “assets of the company’s long term business fund” means—

(a)

assets held primarily for the purposes of long term business carried on by the society; and

(b)

the relevant fraction of each asset held neither primarily for the purposes of long term business nor primarily for the purposes of some other specific business carried on by the society.

(12)

For the purposes of subsection (11) above “the relevant fraction”, subject to subsection (13) below, is the fraction of which—

(a)

the numerator is the mean of the total balances brought forward and carried forward in the fund accounts for those funds within which the society conducts its long term business, less the mean of the assets already recognised at the beginning and end of the period of account as held for the purposes of long term business carried on by the society; and

(b)

the denominator is the mean of the total balances brought forward and carried forward on all of the society’s fund accounts, less the mean of the opening and closing values of assets already recognised at the beginning and end of the period of account as held for the purposes of long term business or for the purposes of other specific business carried on by the society.

(13)

A balance on a general management fund or a general reserve fund shall be excluded from both the numerator and the denominator in the calculation of the relevant fraction for the purposes of subsection (11) above.

(14)

For the purposes of subsection (12) above references to balances brought forward and carried forward are references to balances brought forward and carried forward as shown in the society’s periodical return.”

“(2A)

For the purposes of subsection (1) above, in a case where an amount is taken into account in accordance with section 83(2A) of the Finance Act 198918, there shall be determined the aggregate of the amount determined in accordance with subsection (2)(a) above and

$\genfrac{}{}{0.1ex}{}{\mathrm{CAS}}{\mathrm{AS}}\times \mathrm{RA}$

where—

• CAS

  and AS have the meanings given by subsection (2) above; and

• RA

  is the amount taken into account in accordance with section 83(2A) of the Finance Act 1989.”

“(6A)

Where a friendly society carries on tax exempt basic life assurance and general annuity business—

(a)

the amount of any allowance falling to be given under Part II of the 1990 Act in respect of expenditure on management assets and which, by virtue of subsection (4) above, is referable to tax exempt basic life assurance and general annuity business shall not be treated as additional expenses of management within section 76; and

(b)

the amount of any charge falling to be made under that Part and which is so referable shall not be chargeable to tax under Case VI of Schedule D.”

“(f)

the opening liabilities and the closing liabilities of the society shall be ascertained in accordance with paragraph (b) of the definition of “liabilities” in subsection (2) of section 431, and the definition of “closing liabilities” in that subsection shall not apply.”

“(6)

Subsection (7) below applies where the amount shown in respect of Item 3 of Part I of Schedule 7 to the Friendly Societies (Accounts and Related Provisions) Regulations 199425 (“the Item 3 amount”) is a positive amount; and subsection (8) below applies where the Item 3 amount is a negative amount.

(7)

The amount of the increase in liabilities to policy holders (that is to say, the excess of the society’s closing liabilities to policy holders over its opening liabilities to policy holders) that is taken into account for the purpose of computing the profits arising to the society from pension business shall be the Item 3 amount.

(8)

The amount of the decrease in liabilities to policy holders (that is to say, the excess of the society’s opening liabilities to policy holders over its closing liabilities to policy holders) that is taken into account for the purpose of computing the profits arising to the society from pension business shall be the Item 3 amount.”

“(9)

Subject to subsection (11) below, in a case where, for any period of account, income or gains arising to a society—

(a)

derive directly or indirectly from a transaction or transactions with a member or members of the society, and

(b)

exceed the amount of the income or gains which would have arisen to the society if any transaction mentioned in paragraph (a) above had been a transaction at arm’s length,

the closing liabilities of the society shall be reduced by the amount of the excess; but the opening liabilities for the next following period of account shall not be increased by the like amount.

(10)

For the purposes of subsection (9) above a person associated with a member shall be treated as a member; and “associated” shall be construed in accordance with section 783(10)26.

(11)

In any case where—

(a)

there has been a transaction consisting of the disposal of an asset to a friendly society (“the earlier disposal”),

(b)

section 17(1)(a) of the 1992 Act has applied on the earlier disposal,

(c)

the friendly society subsequently makes a disposal of the asset (“the later disposal”), and

(d)

subsection (9) above applies (or would, apart from this subsection, apply) to the later disposal,

any gains accruing to the society on the later disposal shall, for the purposes of subsection (9) above, be reduced by the excess (if any) of the amount treated, by virtue of the application of section 17(1)(a) of the 1992 Act, as the consideration for the earlier disposal over the actual amount of the consideration for the earlier disposal.”

““taxable basic life assurance and general annuity business” means basic life assurance and general annuity business the profits arising from which do not fall to be exempted from tax by virtue of section 460(1), and for the purposes of this definition it shall be assumed that the friendly society has made a claim for exemption from tax under that provision.”

“(4A)

Subsection (1) above shall not have effect in relation to any assets which—

(a)

cease to be within the category set out in paragraph (e) of subsection (4) above and come within the category set out in paragraph (f) of that subsection, or

(b)

cease to be within the category set out in paragraph (f) of subsection (4) above and come within the category set out in paragraph (e) of that subsection.”

“(d)

assets linked solely to taxable basic life assurance and general annuity business;

(da)

assets linked solely to tax exempt basic life assurance and general annuity business;”.

“(iii)

taxable basic life assurance and general annuity business, or

(iv)

tax exempt basic life assurance and general annuity business,”.

“(ab)

the opening liabilities and the closing liabilities of the society shall be ascertained in accordance with paragraph (b) of the definition of “liabilities” in subsection (2) of section 431, and the definition of “closing liabilities” in that subsection shall not apply, and”.

“(4A)

Profits (or any loss, to be computed on the same basis as the profits) arising to the society from its overseas life assurance business shall be divided into a taxable part and a tax exempt part.

(4B)

The division shall be made in the ratio which the mean of the opening and closing liabilities to policy holders in respect of taxable business bears to the mean of the opening and closing liabilities to policy holders in respect of tax exempt business.

(4C)

The profits referable to the taxable part or, as the case may be, any loss referable to the taxable part, shall be treated as income within Schedule D, and be chargeable or, as the case may be, allowable, under Case VI of that Schedule.

(4D)

In subsection (4B) above and in this subsection “tax exempt business” means overseas life assurance business the profits arising from which are exempt from tax by virtue of section 460(1); and “taxable business” means overseas life assurance business other than tax exempt business.”

“(9)

Where a period of account ends on a day to which a valuation report has not been prepared, or begins on a day immediately following such a day, the amount of any unappropriated surplus on valuation for the purposes of subsections (1)(b) and (4) above shall be the amount which was taken into account at the end of the last period of account for which a valuation report was prepared.”

“(2A)

Where, in a case where the expenses charged in the management fund exceed the amount transferred from all revenue account funds, the amount determined in accordance with subsection (2B) below shall be taken into account as a receipt of the period.

(2B)

Subject to subsection (2D) below, that amount is the amount found by—

(a)

taking the aggregate amount of the society’s investment income recognised in the account of the management fund;

(b)

either adding any increase in value of the assets of the management fund, or subtracting any decrease in value of the assets of the management fund, as the case may be; and

(c)

multiplying the amount so found by the fraction specified in subsection (2C) below.

(2C)

That fraction is the fraction of which—

(a)

the numerator is the amount transferred from the revenue account recognised for the purposes of section 83A(2)36, and

(b)

the denominator is the amount transferred from all revenue account funds.

(2D)

Where, apart from this subsection, the amount determined in accordance with subsection (2B) above would be a negative amount, the amount determined in accordance with that subsection shall be taken to be nil.”

“(2A)

In subsection (2)(a) above the reference to assets of the company’s long term business fund shall be construed in accordance with section 432A(11) of the Taxes Act 1988.”

“(2)

The accounts recognised for the purposes of those sections are—

(a)

a revenue account included in, or supplied to the Friendly Societies Commission with, the society’s valuation report which contains items relating to the society’s life or endowment business in respect of the whole of the society’s long term business;

(b)

any separate revenue account included in, or supplied to the Friendly Societies Commission with, the society’s valuation report which contains items relating to the society’s life or endowment business in respect of a part of the society’s long term business.

Paragraph (b) above does not include accounts required in respect of internal linked funds.

(2A)

In subsection (2) above “life or endowment business” has the meaning given by section 466(1) of the Taxes Act 198838.”

“(2)

The account recognised for the purposes of those sections is the income and expenditure account prepared in accordance with the requirements of the Friendly Societies (Accounts and Related Provisions) Regulations 199439.”

“(9)

In subsection (1) above the reference to assets of an insurance company’s long term business fund shall be construed in accordance with section 432A(11) of the Taxes Act.”

““taxable basic life and general assurance business” has the meaning given by section 431(2) of the Taxes Act 1988.”