Finance Act 2000 (c. 17)

Part III U.K. Income Tax, Corporation Tax and Capital Gains Tax

Chapter II U.K. Other provisions

Insurance U.K.

107 General insurance reserves. U.K.

(1) Where an amount representing the whole or any part of the technical provisions which are made by a general insurer for a period of account is taken into account in computing for tax purposes the profits of his trade for that period—

(a) subsection (2) below applies if it becomes apparent in a later period of account that the amount taken into account was excessive; and

(b) subsection (3) below applies if it becomes apparent in such a period that that amount was insufficient.

(2) For the purpose of making good to the Exchequer the loss occasioned by the excess, an amount calculated by applying, for a prescribed period, a prescribed rate of interest to the amount of the excess shall be treated as a receipt of the general insurer’s trade in computing for tax purposes the profits of that trade for the later period of account.

(3) For the purpose of making good to the general insurer the loss occasioned by the deficiency, an amount calculated by applying, for a prescribed period, a prescribed rate of interest to the amount of the deficiency shall be treated as an expense of the general insurer’s trade in computing for tax purposes the profits of that trade for the later period of account.

(4) A general insurer may, before the end of a prescribed period, elect that any part of the technical provisions made by him for a period of account shall not be taken into account in computing for tax purposes the profits of his trade for that period; and where he does so, the profits of his trade for the next period of account shall be adjusted accordingly for the purposes of any computation for tax purposes.

(5) The Board may by regulations make provision for giving effect to subsections (1) to (4) above.

(6) The regulations may, in particular—

(a) exclude from the operation of subsections (1) to (4) above such descriptions of general insurer as may be prescribed;

(b) make such provision as appears to the Board to be appropriate for determining for the purposes of subsections (1) to (3) above whether any amount taken into account was excessive or insufficient and, if so, the amount of the excess or deficiency, including—

(i) provision requiring discounting at a prescribed rate; and

(ii) provision allowing a prescribed margin for error;

(c) make provision for applying subsections (1) to (3) above, to such extent and with such modifications as appear to the Board to be appropriate, to cases where it becomes apparent—

(i) that any amount taken into account was or has become insufficient; or

(ii) that any amount treated as a receipt or expense of a trade was excessive;

(d) make such provision as appears to the Board to be appropriate for dealing with cases where a general insurer transfers his general business to, or enters into a qualifying contract with, another person; and

(e) in the event of any changes in the rules or practice of Lloyd’s, make such amendments of this section as appear to the Board to be expedient having regard to those changes.

(7) In this section—

• “closing year”, in relation to a syndicate, has the same meaning as in Chapter III of Part II of the M1 Finance Act 1993 or Chapter V of Part IV of the M2 Finance Act 1994;

• [F1 “general business” means business which consists of the effecting or carrying out of contracts that fall within Part I of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;]

• “general insurer” means any of the following which carries on general business—

  (a)

  a person (other than a friendly society) who has permission under Part 4 of the Financial Services and Markets Act 2000 to effect or carry out contracts that fall within Part I of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

  (b)

  an EEA firm of the kind mentioned in paragraph 5(d) of Schedule 3 to that Act which has permission under paragraph 15 of Schedule 3 to that Act (as a result of qualifying for authorisation under paragraph 12(1) of that Schedule) to effect or carry out such contracts;

  (ba)

  [F2 a firm which has permission under paragraph 4 of Schedule 4 to that Act (as a result of qualifying for authorisation under paragraph 2 of that Schedule) to effect or carry out such contracts;]

  (c)

  a controlled foreign company within the meaning of Chapter IV of Part XVII of the Taxes Act 1988; and

  (d)

  an underwriting member of Lloyd’s (“an underwriting member”);

• “period of account”—

  (a)

  except in relation to an underwriting member, means a period for which an account is made up;

  (b)

  in relation to such a member, means an underwriting year in which profits or losses are declared for an earlier underwriting year;

• “prescribed” means prescribed by regulations under this section;

• “qualifying contract”, in relation to a general insurer, means a contract for reinsuring the liabilities to which any technical provisions of his relate;

• “reinsurance to close contract” means a contract where, in accordance with the rules or practice of Lloyd’s and in consideration of the payment of a premium, one underwriting member agrees with another to meet liabilities arising from the latter’s underwriting business for an underwriting year so that the accounts of the business for that year may be closed;

• “syndicate” means a syndicate of underwriting members of Lloyd’s formed for an underwriting year;

• “technical provisions”, except in relation to an underwriting member, means any of the following—

  (a)

  provisions for claims outstanding;

  (b)

  provisions for unearned premiums;

  (c)

  provisions for unexpired risks;

  and in this definition expressions which are used in Schedule 9A to the M3 Companies Act 1985 have the same meanings as in that Schedule;

• “technical provisions”, in relation to an underwriting member, means—

  (a)

  so much of the premiums paid, or treated (in accordance with the rules or practice of Lloyd’s) as paid, by him under reinsurance to close contracts; and

  (b)

  so much of any provisions made for the unpaid liabilities of an open syndicate of which he is a member,

  as may be determined by or under regulations made by the Board;

• “underwriting year” means the calendar year;

and for the purposes of this section a syndicate is an open syndicate at any time after the end of its closing year if, at that time, the accounts of its business for the underwriting year for which it was formed have not been closed.

(8) Regulations under this section may—

(a) make different provision for different cases or descriptions of case, including different provision for different entitlements to participate in the general business carried on by syndicates; and

(b) make such supplementary, incidental, consequential and transitional provision as appears to the Board to be appropriate.

(9) An amount which under subsection (2) or (3) above is treated as a receipt or expense of an underwriting member’s trade—

(a) shall not be included in the aggregate amount mentioned in paragraph 1 of Schedule 19 to the M4 Finance Act 1993; but

(b) shall be regarded as arising directly from his membership of one or more syndicates for the purposes of section 172(1)(a) of the Finance Act 1993 or section 220(2)(a) of the M5 Finance Act 1994.

(10) Nothing in paragraph 7 of Schedule 19 to the Finance Act 1993 shall be taken to affect the operation of subsection (2) or (3) above or the exercise of the power conferred by subsection (4) above.

(11) Section 177 of the M6 Finance Act 1993 and section 224 of the M7 Finance Act 1994 (which are superseded by this section) shall cease to have effect.

(12) In this section—

(a) subsections (1) to (3), subsections (5) to (8) and (10) so far as relating to those subsections and subsection (9) have effect where—

(i) the first period of account mentioned in subsection (1) begins on or after 1st January 2000; and

(ii) the later period of account mentioned in that subsection begins on or after 1st January 2001;

(b) subsection (4), and subsections (5) to (8) and (10) so far as relating to that subsection, have effect in relation to periods of account beginning on or after 1st January 2000;

(c) subsection (11) has effect in relation to profits of underwriting members’ trades which are declared in periods of account beginning on or after that date.

Textual Amendments

F1 S. 107(7): definition of “general business" substituted (1.12.2001) by S.I. 2001/3629, arts. 1(2), 106

F2 S. 107(7): paras. (a)(b)(ba) in definition of “general insurer" substituted (1.12.2001) for paras. (a)(b) by S.I. 2001/3629, arts. 1(2), 106

Modifications etc. (not altering text)

C1 S. 107(1)-(4) restricted (29.5.2001 with effect as mentioned in art. 1 of the amending S.I.) by S.I. 2001/1757, arts 1, 6

Marginal Citations

M1 1993 c. 34.

M2 1994 c. 9.

M3 1985 c. 6.

M4 1993 c. 34.

M5 1994 c. 9.

M6 1993 c. 34.

M7 1994 c. 9.