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Finance Act 2012

Schedule 17

103.Schedule 17 contains transitional provisions.

Schedule 17 Part 1

104.Paragraph 1 explains that Part 1 of Schedule 17 provides for deemed receipts or deemed expenses to arise on transition for the purposes of computing BLAGAB trade profits and non-BLAGAB long-term business profits. The general rule is that receipts and expenses are treated as arising over a 10-year period.

105.Paragraph 2 explains what is meant by “the 2012 balance sheet” and “the 2012 periodical return”.

106.Paragraphs 3 and 4 deem a balance sheet and/or periodical return to have been drawn up at 31 December 2012 if the company does not have an actual balance sheet and/or periodical return at that date.

107.Paragraph 5 requires the insurance company to calculate the total transitional difference by way of a comparison of the amount attributed to shareholders (that is, amounts which would have been recognised in profits if an accounts basis had always applied) as at 31 December 2012 with the cumulative taxed surplus at the same date (that is, surplus recognised in the regulatory return and taken into account when computing profits). The paragraph permits HM Treasury to prescribe by regulations adjustments to the method by which the amount attributed to shareholders is calculated.

108.Paragraph 6 requires the insurance company to identify the items which together make up the total transitional difference, and to allocate a positive or negative amount to each item. The paragraph permits HM Treasury to prescribe by regulations how the items are to be determined.

109.Paragraph 7 provides that the items making up the total transitional difference are “relevant computational items” unless they are “excluded items”. It specifies certain excluded items and gives HM Treasury power to specify others by regulations.

110.Paragraph 8 apportions the relevant computational items between the pre-transition categories of business, that is, BLAGAB, gross roll-up business (GRB) and PHI. Amounts apportioned to PHI are ignored in applying the rest of the transitional rules.

111.Paragraphs 9 and 10 explain that relevant computational items (or parts of them) allocated to BLAGAB or non-BLAGAB long-term business are treated as receipts or expenses in computing BLAGAB trade profits or profits of non-BLAGAB long term business for accounting periods commencing on or after 1 January 2013.

112.Paragraph 11 describes the 10-year period over which receipts and expenses are treated as arising. The 10-year period begins on 1 January 2013. It excludes receipts which are “relevant court-protected items” (see paragraph 12).

113.Paragraph 12 defines a relevant court-protected item, and provides that receipts arising from such items are treated as arising over a 10-year period beginning on the date the court order ceases to be in force or 1 January 2015, whichever is the earlier.

114.Paragraphs 13 and 14 explain how transitional receipts or expenses are to be treated where there is a subsequent transfer of insurance business.

115.Paragraph 15 deals with the treatment of transitional amounts where an insurance company ceases to carry on long-term business other than as a result of a transfer.

116.Paragraph 16 provides that where there is an unrelieved charge under the financing arrangement-funded transfer legislation in section 83YC of Finance Act 1989 that charge is to be treated as a negative ‘relevant computational amount’.

117.Paragraph 17 is an anti-avoidance provision. Where, on or after 21 March 2012, an insurance company enters into arrangements or does something in connection with the transitional rules, and its purpose is unallowable, an officer of Revenue and Customs may take steps to nullify any tax advantage. An unallowable purpose includes securing a tax advantage in connection with the transitional rules.

118.Paragraphs 18 and 19 set out the clearance procedure by which a company can seek confirmation from HMRC that paragraph 17 does not apply.

119.Paragraph 20 makes special provision for overseas life insurance companies in certain circumstances.

Schedule 17 Part 2

120.Paragraph 21 provides for a company to make an irrevocable election to treat certain contracts of insurance effected prior to 1 January 2013 as having been made on or after that date for the purposes of section 62

121.Paragraph 22 prevents an amount being taken into account in computing BLAGAB trade profits or non-BLAGAB long-term business profits where it was already taken into account in computing trade profits in a period before the transition.

122.Paragraph 23 prevents double relief where an expense appeared in the regulatory return of a pre-transition period and was spread forward into a post-transition period under current tax rules. If that same expense were charged to the profit loss account in a post-transition period, double relief would, but for this paragraph, arise.

123.Paragraph 24 applies to intangible fixed assets which were excluded from Part 8 of CTA 2009 under the old law, but which are brought within Part 8 by this legislation. Expenditure incurred before 1 January 2013 is to be ignored in determining amounts to be brought into account under Part 8.

124.Paragraph 25 makes clear that the transition of assets from the existing categories in section 440 ICTA to the new categories in sections 116 to 118 does not trigger a deemed disposal and reacquisition.

125.Paragraph 26 makes clear that the transition of assets from the existing holdings of securities in section 440A ICTA to the new holdings in sections 119 to 121 does not trigger a deemed disposal and reacquisition.

126.Paragraph 27 provides rules for the carry forward of the base cost of existing holdings of securities under section 440A ICTA into the new holdings under sections 119 to 121.

127.Paragraph 28 applies in situations where existing rules at section 210B Taxation of Capital Gains Act 1992 would have operated. It gives identification rules where there is a disposal and acquisition of securities around the transition date.

128.Paragraphs 29 to 32 describe the treatment of various losses and excess management expenses carried forward from an accounting period ending before 1 January 2013 into the new regime.

129.Paragraph 33 permits acquisition costs spread forward under section 86 FA1989 from a pre-transition period to be relieved in a post-transition period.

130.Paragraph 34 permits BLAGAB trade losses to be carried back to pre-transition accounting periods under section 37 CTA 2010.

131.Paragraph 35 states that assets previously treated as assets of the shareholder fund for the last period of account ending before 1 January 2013 are to be treated as fixed capital assets from 1 January 2013. The paragraph defines when an asset is to be regarded as having been an asset of the shareholder fund.

Schedule 17 Part 3

132.Paragraph 36 applies where Part 1 of this Act re-enacts an enactment that has been repealed by the legislation. It provides that any statutory instrument which was made under a provision repealed by this legislation and which has effect for accounting periods ending on 31 December 2012 has effect in relation to subsequent accounting periods as if it had been made under the corresponding provision in this legislation.

133.Paragraphs 37 and 38 give HM Treasury a power to make further transitional provisions by way of regulations.

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