Income and Corporation Taxes Act 1988

76 Expenses of management: insurance companies. U.K.

(1) M1 Subject to the provisions of this section and of section 432, section 75 shall apply for computing the profits of a company carrying on life assurance business, whether mutual or proprietary, (and not charged to corporation tax in respect of it under Case I of Schedule D), whether or not the company is resident in the United Kingdom, as that section applies in relation to an investment company except that—

[F1 (aa) where the whole or any part of a loss arising to the company in respect of its life assurance business in an accounting period is set off under section 393A or 403(1), there shall be deducted from the amount treated as the expenses of management for that period an amount equal to so much of the loss as, in the aggregate, is so set off, reduced by the amounts by which any losses for that period under section 436, 439B or 441 fall to be reduced under section 434A(2)(b); and

(ab) section 75(1) shall have effect with the substitution for “in computing profits apart from this section” of—

“(a) in computing income for the purposes of Schedule A, or

(b) by virtue of section 121(3) in computing income from the letting of rights to work minerals in the United Kingdom”; and]

(a) there shall be deducted from the amount treated as the expenses of management for any accounting period the amount of any fines, fees or profits arising from reversions, and

(b) no deduction shall be made under section 75(2) [F2 ; and

(c) there shall be deducted from the amount treated as the expenses of management for any accounting period any repayment or refund (in whole or in part) of a sum disbursed by the company (for that or any earlier period) as acquisition expenses; and

[F3 (ca) there shall also be deducted from the amount treated as the expenses of management for any accounting period any reinsurance commission earned in the period which is referable to [F4 basic life assurance and general annuity business]; and]

(d) the amount treated as expenses of management shall not include any amount in respect of expenses referable to F5 . . . [F6 , pension business [F7 , life reinsurance business] or overseas life assurance business]; and

(e) the amount of profits from which expenses of management may be deducted for any accounting period shall not exceed the net income and gains of that accounting period referable to [F4 basic life assurance and general annuity business];

and for this purpose “net income and gains” means income and gains after deducting any reliefs or exemptions which fall to be applied before taking account of this section.]

[F8 (2) Where, in the case of any such company, the amount mentioned in paragraph (a) of subsection (2A) below exceeds for any accounting period the amount mentioned in paragraph (b) of that subsection, the amount which by virtue of this section is to be deductible by way of management expenses for that period shall be equal to the basic deduction for that period reduced by the amount of the excess.

(2A) Those amounts are—

(a) the amount which would be the profits of the company’s life assurance business for that period if computed in accordance with the provisions applicable to Case I of Schedule D and adjusted in respect of losses; and

(b) the amount (including any negative amount) produced by deducting the following aggregate amount from the company’s relevant income for that period from its life assurance business, that is to say, the aggregate of—

(i) the basic deduction,

(ii) any non-trading deficit on the company’s loan relationships which is produced for that period in relation to that business by a separate computation under paragraph 2 of Schedule 11 to the Finance Act 1996,

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

(iv) any charges on income for that period so far as they consist in annuities or other annual payments that are referable to the company’s life assurance business and, if they are not annuities, are payable by the company wholly or partly in satisfaction of claims under insurance policies.

(2B) For the purposes of subsection (2A) above a company’s relevant income for any accounting period from its life assurance business is the sum of the following—

(a) the income and gains of the company’s life assurance business for that accounting period; and

(b) the relevant franked investment income of the company for that period so far as it arises from assets held for the purposes of that business and is not included in the income and gains mentioned in paragraph (a) above.

(2C) The adjustment in respect of losses that is to be made for any accounting period under paragraph (a) of subsection (2A) above is a deduction of the amount equal to the unused part of the sum which—

(a) by reference to computations made in respect of the company’s life assurance business in accordance with the provisions applicable to Case I of Schedule D, and

(b) disregarding section 434A(2),

would fall, in the case of the company, to be set off under section 393 against the company’s income for that period.

(2D) For the purposes of subsection (2C) above, an amount is unused to the extent that it has not been taken into account for any previous accounting period in determining the amount by reference to which the following question was answered, namely, the question whether, and by how much, the amount deductible by virtue of this section by way of management expenses was less than the basic deduction.

(5) Subject to paragraph 4(11) to (13) of Schedule 11 to the Finance Act 1996, where the basic deduction for any period exceeds the amount which for that period is to be deductible by virtue of this section by way of management expenses, the amount to be carried forward by virtue of section 75(3) (including the amount to be so carried forward for the purpose of computing the amount of the basic deduction for any period) shall be increased by the amount of the excess.]

[F9 (5A) In the preceding provisions of this section references to life assurance business and references to basic life assurance and general annuity business shall be deemed, in each case, to include references to capital redemption business.]

(6) M2 The relief under this section available to an overseas life insurance company (within the meaning of section 431) in respect of its expenses of management shall be limited to expenses attributable to the life assurance business carried on by the company at or through its branch or agency in the United Kingdom [F10 or to any capital redemption business carried on by the company at or through that branch or agency].

(7) M3 For the purposes of this section any sums paid by a company under [F11 (a)]a long term business levy imposed by virtue of the M4 Policyholders Protection Act 1975 [F12 or

(b) a levy imposed in pursuance of a scheme established by rules under section 54 of the 1986 Act (compensation fund for unsatisfied claims),]

shall be treated as part of its expenses of management.

[F13 (7A) The Treasury may by regulations make provision for any sums paid by a company under a prescribed levy imposed under a prescribed investor protection scheme established under the rules of a prescribed recognised self-regulating organisation to be treated for the purposes of this section as part of the company’s expenses of management; and, without prejudice to the generality of the foregoing, regulations under this subsection may, in particular—

(a) provide for only a prescribed part of any sums so paid to be so treated;

(b) provide for sums paid before, as well as after, the coming into force of the regulations to be so treated; and

(c) make different provision for different cases or in relation to different levies, schemes or organisations.]

[F14 (8) In this section—

• “the 1986 Act” means the Financial Services Act 1986;

• “acquisition expenses” means expenses falling within paragraphs (a) to (c) of subsection (1) of section 86 of the Finance Act 1989;

• “authorised person” has the same meaning as it has in the 1986 Act by virtue of section 207(1) of that Act;

• [F15 “basic deduction”, in relation to an accounting period of an insurance company, means the amount which, by virtue of this section, would be deductible by way of management expenses for that period but for subsection (2) above;

• [F16 “capital redemption business” means any capital redemption business, within the meaning of section 458, which is business to which that section applies;]]

• “investment business” has the same meaning as it has in the 1986 Act by virtue of section 1(2) of that Act;

• “investor” includes a person who is an investor for the purposes of the 1986 Act;

• “investor protection scheme” means a scheme established under the rules of a recognised self-regulating organisation for purposes which consist of or include the compensating of investors in cases where persons, or persons of some class or description, who are or have been authorised persons, are, or are likely to be, unable to satisfy claims in respect of any description of civil liability incurred by them in connection with their investment businesses;

• “prescribed” means specified in regulations made by the Treasury under subsection (7A) above;

• “recognised self-regulating organisation” has the same meaning as it has in the 1986 Act;

• [F17 “relevant franked investment income”, in relation to any insurance company, means any franked investment income of the company in so far as it is not income the tax credits comprised in which may be claimed by the company under section 438(4) or 441A(7);]

and other expressions have the same meaning as in Chapter I of Part XII.]

Textual Amendments

F1 S. 76(1)(aa)(ab) inserted (with effect in accordance with Sch. 31 para. 10(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 31 para. 1

F2 1989 s.87(2)with respect to accounting periods beginning on or after 1January 1990 (see s.87(5)re straddling periods).

F3 1990 s.44(3)with respect to accounting periods beginning on or after 1January 1990 (see 1989 s.87(5)re straddling periods).

F4 Words in s. 76(1)(ca)(e) substituted (1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 1(a), 18

F5 Words in s. 76(1)(d) repealed (1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), ss. 48, 123, Sch. 7 paras. 1(b), 18, Sch. 19 Pt. V Note 3

F6 1990 s.42and Sch.7 para.1for accounting periods beginning on or after 1January 1990 (see para.10).Previously

“or pension business”.

F7 Words in s. 76(1)(d) inserted (with effect in accordance with Sch. 8 para. 57(1) of the amending Act) by Finance Act 1995 (c. 4), Sch. 8 para. 7 (with s. 55(2))

F8 S. 76(2)-(2D)(5) substituted (with effect in accordance with s. 164(5)(6) of the amending Act) by Finance Act 1996 (c. 8), s. 164(1)

F9 S. 76(5A) inserted (with effect in accordance with Sch. 33 para. 4 of the amending Act) by Finance Act 1996 (c. 8), Sch. 33 para. 1(1)

F10 Words in s. 76(6) inserted (with effect in accordance with Sch. 33 para. 4 of the amending Act) by Finance Act 1996 (c. 8), Sch. 33 para. 1(2)

F11 '(a)' in s. 76(7) inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 47(1)(with effect as mentioned in s. 47(4))

F12 Words in s. 76(7) inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 47(1)(with effect as mentioned in s. 47(4))

F13 S. 76(7A) inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 47(2)

F14 S. 76(8) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 47(3)

F15 S. 76(8): definition of "basic reduction" inserted (with effect in accordance with s. 164(5)(6) of the amending Act) by Finance Act 1996 (c. 8), s. 164(2)(a)

F16 S. 76(8): definition of "capital redemption business" inserted (with effect in accordance with Sch. 33 para. 4 of the amending Act) by Finance Act 1996 (c. 8), Sch. 33 para. 1(3)

F17 Words in s. 76(8) inserted (29.4.1996 with effect in accordance with s. 164(5)(6) of the amending act) by Finance Act 1996 (c. 8), s. 164(2)(b)

Modifications etc. (not altering text)

C1 See 1989 s. 44 - periods of assessment ending after 5 April 1989 involving endowments. 1989 ss. 85-88 - changes in respect of insurance companies.

C2 S. 76 modified (29.4.1996) by Finance Act 1996 (c. 8, {s. 164(6)}

C3 S. 76 restricted (with effect in accordance with s. 105(1) of the restricting Act) by Finance Act 1996 (c. 8), Sch. 11 para. 4(2) (with Sch. 15)

C4 S. 76(1) modified by S.I. 1992/1655, reg. 3H (as inserted (10.8.1995) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 1995 (S.I. 1995/1916), reg. 4

C5 See the following sections of this Act:

—s.85—

profit sharing schemes.

s.88—

sums paid to Exports Credits Guarantee Dept. under investment insurance scheme.

s.90—

additional payments to redundant employees.

s.242—

set-off of losses etc., against franked investment income.

s.403—

management expenses of life assurance companies excluded from group relief.

s.573(4)—

losses on unquoted shares in trading companies allowed before charges against income of investment companies.

s.579—

deduction for statutory redundancy payments.

s.586—

disallowance of deductions for war risk premiums.

s.587—

disallowance of certain payments in respect of war injuries to employees.

s.779—

limitation on reliefs: land sold and leased back.

s.780—

land sold and leased back: relief in respect of rent under new lease.

s.781—

assets leased to traders and others: cancellation of reliefs.

s.834—

definitions of “profits” and “trade” in

s.6(4)

to apply for purposes of

s.76

C6 See S.I. 1989 No.2417 (in Part III Vol.5)for modifications applicable to life or endowment business carried on by registered friendly societies.

C7 S. 76(7) modified (31.7.1992 with effect as stated in reg. 1 of the amending instrument) by The Friendly Societies (Modification of the Corporation Tax Acts) Regulations (S.I. 1992/1655), {reg. 4}

C8 S. 76(7) amendment to earlier affecting provision S.I. 1992/1655 reg. 4 (31.12.1993 with effect as stated in reg. 1(2)(3) of the amending instrument) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 1993 (S.I. 1993/3111) {reg. 5}

Marginal Citations

M1 SOURCE-1970 s. 305(1)

M2 SOURCE-1970 s. 317

M3 SOURCE-1976 s. 47

M4 1975 c. 75.