The Friendly Societies (Gilt-edged Securities) (Periodic Accounting for Tax on Interest) Regulations 1996

Citation and commencement

1.  These Regulations may be cited as the Friendly Societies (Gilt-edged Securities) (Periodic Accounting for Tax on Interest) Regulations 1996 and shall come into force on 30th January 1996.

Interpretation

2.  In these Regulations unless the context otherwise requires—

• “amount of excess gilt interest received”, “amount of manufactured gilt interest paid”, “amount of manufactured gilt interest received” and “amount of real gilt interest received” have the same meanings as in the Gilts Regulations;

• “exempt business” means any business of a friendly society the profits arising from which are exempt from income tax and corporation tax under section 460 (1)(1), 461 (1) or 461B (1)(2) of the Taxes Act, not being a business carried on by a friendly society all of whose profits are so exempt;

• “the Friendly Societies Regulations” means the Friendly Societies (Provisional Repayments for Exempt Business) Regulations 1993(3);

• “the Gilts Regulations” means the Gilt-edged Securities (Periodic Accounting for Tax on Interest) Regulations 1995(4);

• “pension business” has the meaning given by section 431B of the Taxes Act(5);

• “relevant gilt-edged securities” has the meaning given by section 51B(5) of the Taxes Act;

• “return period” has the same meaning as in the Gilts Regulations;

• “Schedule 19AB” means Schedule 19AB to the Taxes Act(6);

• “the Taxes Act” means the Income and Corporation Taxes Act 1988(7).

Basic rule

3.—(1) Where the condition specified in paragraph (3) below is satisfied, then, notwithstanding the provisions of the Gilts Regulations, a friendly society carrying on both exempt business and business other than exempt business shall not be required to include in its return for any return period the amount of tax on the amount of excess gilt interest received which is referable to the society’s exempt business.

(2) Where paragraph (1) applies, the society is accordingly required to include in its return for the return period only—

(a) the aggregate of the amount of manufactured gilt interest received and of the amount of real gilt interest received, and

(b) the amount of manufactured gilt interest paid,

which is not included in a claim for a notional repayment made pursuant to sub-paragraph (1) of paragraph 1A of Schedule 19AB (as inserted by regulation 6 of the Insurance Companies (Gilt-edged Securities) (Periodic Accounting for Tax on Interest) Regulations 1995(8) and referred to in this regulation as “sub-paragraph (1)”).

(3) The condition specified is that the amount of tax referred to in paragraph (1) above is identified in a claim, made by the specified date, for a notional repayment made pursuant to sub-paragraph (1).

(4) In paragraph (3) above “the specified date” means the date—

(a) 14 days after the end of the return period, or

(b) in a case where the return for the return period is made on a date less than 14 days from the end of the return period, that date,

whichever is the earlier.

Modifications of the Friendly Societies Regulations

4.  In relation to cases where payments of interest on relevant gilt-edged securities are made without deduction of tax to friendly societies carrying on exempt business, the Friendly Societies Regulations shall have effect with the modifications specified in regulations 5 to 9.

5.—(1) Paragraphs (2) and (3) below specify modifications of regulation 4.

(2) In paragraph (3), for sub-paragraph (a) there shall be substituted—

“(a) for the words from the beginning to “a company” there shall be substituted the words “Subject to sub-paragraphs (2A) and (2B) below, for the purposes of this paragraph a “provisional repayment period” of a society”.”

(3) After paragraph (3), the following paragraphs shall be inserted—

“(3A) In sub-paragraph (2A)—

(a) for the words “Sub-paragraphs (2B) and (2C) below have effect” there shall be substituted the words “Sub-paragraph (2B) below has effect”;

(b) for the words “companies carrying on pension business” there shall be substituted the words “societies carrying on tax exempt business”.

(3B) In sub-paragraph (2B)—

(a) the words “Subject to paragraph (2C) below,” shall be omitted;

(b) for the words “a company” there shall be substituted the words “a society”;

(c) for paragraph (a) there shall be substituted—

“(a) shall begin whenever—

(i) the society begins, at a time when it is carrying on only tax exempt business, to carry on business other than tax exempt business;

(ii) the society begins, at a time when it is carrying on only business other than tax exempt business, to carry on tax exempt business;

(iii) an accounting period of the society begins at a time when the society is carrying on both tax exempt business and business other than tax exempt business; or

(iv) a provisional repayment period of the society ends, at a time when the society is carrying on both tax exempt business and business other than tax exempt business; and;”

(d) in paragraph (b) for the words “the company”(wherever occurring) there shall be substituted the words “the society”.

(3C) Sub-paragraph (2C) shall be omitted..”

6.—(1) Paragraphs (2) and (3) below specify modifications of regulation 5.

(2) In paragraph (3), for sub-paragraph (a) there shall be substituted—

(a) for the words from the beginning to “a company” there shall be substituted the words “Subject to sub-paragraphs (2A) and (2B) below, for the purposes of this paragraph a “provisional repayment period” of a society”.

(3) After paragraph (3) the following paragraphs shall be inserted—

“(3A) In sub-paragraph (2A)—

(a) for the words “Sub-paragraphs (2B) and (2C) below have effect” there shall be substituted the words “Sub-paragraph (2B) below has effect”;

(b) for the words “companies carrying on pension business” there shall be substituted the words “societies carrying on tax exempt business”.

(3B) In sub-paragraph (2B)—

(a) the words “Subject to sub-paragraph (2C) below,” shall be omitted;

(b) for the words “a company” there shall be substituted the words “a society”;

(c) for paragraph (a) there shall be substituted—

“(a) shall begin whenever—

(i) the society begins, at a time when it is carrying on only tax exempt business, to carry on business other than tax exempt business;

(ii) the society begins, at a time when it is carrying on only business other than tax exempt business, to carry on tax exempt business;

(iii) an accounting period of the society begins at a time when the society is carrying on both tax exempt business and business other than tax exempt business; or

(iv) a provisional repayment period of the society ends, at a time when the society is carrying on both tax exempt business and business other than tax exempt business; and;”

(d) in paragraph (b) for the words “the company”(wherever occurring) there shall be substituted the words “the society”.

(3C) Sub-paragraph (2C) shall be omitted..”

7.  After regulation 5 there shall be inserted the following regulations—

“Modifications of paragraph 1A of Schedule 19AB in relation to directive societies

5A.— (1) Paragraphs (2) to (11) below specify modifications of paragraph 1A of Schedule 19AB in relation to exempt business of a directive society.

(2) In sub-paragraph (1)—

(a) for the words “An insurance company carrying on pension business” there shall be substituted the words “A friendly society carrying on both tax exempt business and business other than tax exempt business”;

(b) for the words “its pension business” there shall be substituted the words “its tax exempt business”.

(3) For sub-paragraph (2) there shall be substituted the following sub-paragraph—

“(2) No repayment shall be made to a society in respect of any claim to a notional repayment; but the notional repayment shall be taken to be the amount of tax referred to in regulation 3(1) of the Friendly Societies (Gilt-edged Securities) (Periodic Accounting for Tax on Interest) Regulations 1996..”

(4) In sub-paragraph (3)—

(a) the words “Subject to sub-paragraphs (4) and (5) below,” shall be omitted;

(b) for the words “a company” there shall be substituted the words “a society”;

(c) for paragraph (a) there shall be substituted—

“(a) shall begin whenever—

(i) the society begins, at a time when it is carrying on only tax exempt business, to carry on business other than tax exempt business;

(ii) the society begins, at a time when it is carrying on only business other than tax exempt business, to carry on tax exempt business;

(iii) an accounting period of the society begins at a time when the society is carrying on both tax exempt business and business other than tax exempt business; or

(iv) a provisional repayment period of the society ends, at a time when the society is carrying on both tax exempt business and business other than tax exempt business; and;”

(d) in paragraph (b) for the words “the company”(wherever occurring) there shall be substituted the words “the society”.

(5) Sub-paragraphs (4) and (5) shall be omitted.

(6) In sub-paragraph (7)—

(a) after the words “section 432A” there shall be inserted the words “, as modified by regulation 7 of the Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1992(9),”;

(b) for the word “company”(wherever occurring) there shall be substituted the word “society”.

(7) In sub-paragraph (8), in paragraph (a), there shall be inserted after the words “Management Act” the words “, unless the accounting period in question was one for which no notice as mentioned in subsection (1) of the said section 11 was served on the society”.

(8) For sub-paragraph (9) there shall be substituted the following sub-paragraphs—

“(9) In sub-paragraph (1) above “the appropriate portion” means—

(a) in so far as the payment is referable to business which is tax exempt business by virtue of section 460(1)—

(i) where the payment in question is either an amount of manufactured gilt interest received or an amount of real gilt interest received and is income arising from assets linked to tax exempt basic life assurance and general annuity business, the whole;

(ii) where the payment in question is an amount of manufactured gilt interest paid in respect of assets linked to tax exempt basic life assurance and general annuity business, the whole; and

(iii) in any other case, the provisional fraction; and

(b) in so far as the payment is referable to business which is tax exempt business by virtue of section 461(1) or 461B(1)—

(i) where the payment in question is either an amount of manufactured gilt interest received or an amount of real gilt interest received and is income arising either from assets linked to long term business other than life or endowment business, or from assets other than those of the society’s long term business fund, the whole;

(ii) where the payment in question is an amount of manufactured gilt interest paid in respect of assets linked to long term business other than life or endowment business, or in respect of assets other than those of the society’s long term business fund, the whole; and

(iii) in any other case the provisional fraction determined in relation to long term business other than life assurance business.

(9A) In sub-paragraph (9) above—

“tax exempt basic life assurance and general annuity business” shall be construed in accordance with the definition inserted in section 431(2) by regulation 5(2) of the Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1992;

“long term business” shall be construed in accordance with the definition substituted in section 431(2) by regulation 5(4) of those Regulations; and

“life or endowment business” has the meaning given by section 466(1)..”

(9) In sub-paragraph (10)—

(a) after the words “section 432A” there shall be inserted the words “, as modified by regulation 7 of the Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1992,”;

(b) for the words “the company’s long term business fund” there shall be substituted the words “the society’s long term business fund”.

(10) In sub-paragraph (13), for the words “the company” there shall be substituted the words “the society”.

(11) In sub-paragraph (15) there shall be added at the end—

“; and “tax exempt business” means any business of a friendly society the profits arising from which are exempt from income tax and corporation tax under section 460(1), 461(1) or 461B(1)”.

Modifications of paragraph 1A of Schedule 19AB in relation to non-directive societies

5B— (1) Paragraphs (2) to (10) below specify modifications of paragraph 1A of Schedule 19AB in relation to exempt business of a non-directive society.

(2) In sub-paragraph (1)—

(a) for the words “An insurance company carrying on pension business” there shall be substituted the words “A friendly society carrying on both tax exempt business and business other than tax exempt business”;

(b) for the words “the appropriate portion” there shall be substituted the words “the relevant fraction”;

(c) for the words “its pension business” there shall be substituted the words “its tax exempt business”.

(3) For sub-paragraph (2) there shall be substituted the following sub-paragraph—

“(2) No repayment shall be made to a society in respect of any claim to a notional repayment; but the notional repayment shall be taken to be the amount of tax referred to in regulation 3(1) of the Friendly Societies (Gilt-edged Securities) (Periodic Accounting for Tax on Interest) Regulations 1996..”

(4) In sub-paragraph (2)—

(a) the words “Subject to sub-paragraphs (4) and (5) below,” shall be omitted;

(b) for the words “a company” there shall be substituted the words “a society”;

(c) for paragraph (a) there shall be substituted—

“(a) shall begin whenever—

(i) the society begins, at a time when it is carrying on only tax exempt business, to carry on business other than tax exempt business;

(ii) the society begins, at a time when it is carrying on only business other than tax exempt business, to carry on tax exempt business;

(iii) an accounting period of the society begins at a time when the society is carrying on both tax exempt business and business other than tax exempt business; or

(iv) a provisional repayment period of the society ends, at a time when the society is carrying on both tax exempt business and business other than tax exempt business; and;”

(d) in paragraph (b) for the words “the company”(wherever occurring) there shall be substituted the words “the society”.

(5) Sub-paragraphs (4) and (5) shall be omitted.

(6) For sub-paragraph (7) there shall be substituted—

“(7) For the purpose of determining the amounts to which a society is entitled by way of notional repayments in the case of any accounting period, “the relevant fraction” in sub-paragraph (1) above means, subject to paragraph (b) of sub-paragraph (8) below, the fraction of which the denominator is the total investment income of the society and the numerator is the investment income of the society which is exempt from income tax and corporation tax under section 460(1), 461(1) or 461B(1) determined—

(a) for the latest preceding accounting period of the society at the end of which the society was required to make a valuation of the liabilities attributable to the whole of its insurance business and for which an inspector is satisfied that the society has supplied him with such information as would enable that fraction for that accounting period to be estimated with reasonable accuracy, and

(b) by reference to that information,

and any reference to “the relevant fraction” is a reference to the fraction so determined..”

(7) In sub-paragraph (8)—

(a) in paragraph (a), there shall be inserted after the words “Management Act” the words “, unless the accounting period in question was one for which no notice as mentioned in subsection (1) of the said section 11 was served on the society”;

(b) in paragraph (b), for the word “provisional” there shall be substituted the word “relevant”.

(8) Sub-paragraphs (9) and (10) shall be omitted.

(9) In sub-paragraph (13), for the words “the company” there shall be substituted the words “the society”.

(10) In sub-paragraph (15) there shall be added at the end—

“; and “tax exempt business” means any business of a friendly society the profits arising from which are exempt from income tax and corporation tax under section 460(1), 461(1) or 461B(1)”.”

8.—(1) Paragraph (2) below specifies a modification of regulation 6.

(2) For paragraph (2) there shall be substituted the following paragraph—

“(2) In sub-paragraphs (2), (3), (3A) and (3B), for the word “company”(wherever occurring) there shall be substituted the word “society”..”

9.—(1) Paragraphs (2) to (4) below specify modifications of regulation 7.

(2) In paragraph (2), in sub-paragraph (b), after the words “the company” there shall be inserted the words “(wherever occurring)”.

(3) After paragraph (2) there shall be inserted the following paragraph—

“(2A) In sub-paragraph (1A)—

(a) for the words “the company” there shall be substituted the words “the society”;

(b) for the words “pension business” there shall be substituted the words “tax exempt business”;

(c) at the end there shall be added “; and in this sub-paragraph “tax exempt business” has the same meaning as it has in paragraph 1A above”..”

(4) In paragraph (5), for the words “the company”(wherever occurring) there shall be substituted the words “the society”.

Derek Conway

Michael Bates

Two of the Lords Commissioners of Her Majesty’s Treasury

9th January 1996