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

Modifications of section 431 of the Taxes Act

6.—(1) Paragraphs (2) to (7) prescribe modifications of section 431 of the Taxes Act(1) so far as it applies to the life or endowment business carried on by friendly societies.

(2) In subsection (2) the following definitions shall be inserted in the appropriate places in alphabetical order—

• “directive society” means—

  (a)

  a friendly society to which section 37(2) of the Friendly Societies Act 1992 applies, or

  (b)

  an incorporated friendly society which does not fall within paragraph (a);

• “incorporated friendly society” has the meaning given by section 116 of the Friendly Societies Act 1992;

• “non-directive society” means a friendly society other than a directive society;

• “tax exempt basic life assurance and general annuity business” means basic life assurance and general annuity business the profits arising from which are exempt from tax by virtue of section 460(1);

• “taxable basic life assurance and general annuity business” means basic life assurance and general annuity business other than tax exempt basic life assurance and general annuity business;

• “valuation report”—

  (a)

  in the case of a directive society, means the abstract of the actuary’s report referred to in section 46(3) of the Friendly Societies Act 1992;

  (b)

  in the case of a non-directive society, means the abstract of the actuary’s report referred to in section 47(2) of the Friendly Societies Act 1992;

(3) In subsection (2) for the definition of “liabilities” there shall be substituted—

““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;”.

(4) In subsection (2) for the definition of “long term business” there shall be substituted—

““long term business” shall be construed in accordance with section 117 of the Friendly Societies Act 1992(2);”.

(5) In subsection (2) for the definition of “periodical return” there shall be substituted—

““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 1994(3); and

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

(6) In subsection (2) for the definition of “value” there shall be substituted—

““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) At the end of the section the following subsections shall be inserted—

“(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—

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—

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.”

(1)

Section 431 was amended by paragraph 1(2) of Schedule 6 to the Finance Act 1990, section 52(1) of, and paragraphs 1 and 11(1) of Schedule 8 and Part VIII(5) of Schedule 29 to, the Finance Act 1995, and, in relation to accounting periods beginning on or after 1st January 1996, by Part V(26) of Schedule 41 to the Finance Act 1996.

(2)

Section 117 was amended by regulation 7 of S.I. 1993/2519.

(3)

S.I. 1994/1981.