Response to accounting changes for insurance contracts
Published 27 October 2021
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This publication is available at https://www.gov.uk/government/publications/response-to-accounting-changes-for-insurance-contracts/response-to-accounting-changes-for-insurance-contracts
Who is likely to be affected
Insurance companies that prepare their accounts under International Financial Reporting Standard 17 (IFRS 17).
All life insurance companies that are currently required to spread acquisition expenses over seven years for tax purposes.
General description of the measure
This measure is an enabling power that will allow the government to make regulations in response to the new international accounting standard for insurance contracts, IFRS 17, so that the transitional impacts of IFRS 17 on insurance companies can be spread for tax purposes.
The power will also give the government the power to revoke the requirement for life insurance companies to spread acquisition expenses over seven years for tax purposes.
The regulations will be informed by a consultation to be launched at Tax Administration and Maintenance Day and by continued engagement with industry stakeholders.
Policy objective
Spreading transitional profits and losses for tax purposes will help mitigate the cashflow and regulatory impacts of the accountancy change. This will support the long-term stability of the insurance sector in the UK and contribute to maintaining the UK as a leading financial services centre. The measure will also mitigate the Exchequer impacts of the accountancy change.
Background to the measure
The Corporation Tax liabilities of insurers are based on their accounting profit. Many insurers prepare their accounts under International Accounting Standards (IAS). The new international accounting standard for insurance contracts, IFRS 17, is expected to become mandatory for periods of account beginning on or after 1 January 2023, subject to its endorsement by the UK Endorsement Board.
IFRS 17 will affect the timing of recognition of insurers’ profits and losses and adoption will create transitional accounting profits or losses, which may have large cashflow and regulatory consequences. A power needs to be taken now to allow the government to deal with the tax implications of IFRS 17. The regulations will be informed by a consultation to be launched on Tax Administration and Maintenance Day.
Detailed proposal
Operative date
This measure is an enabling power that will have effect on and after the date of Royal Assent to Finance Bill 2021-22.
Current law
Current tax law on the spreading of acquisition expenses for life insurers is contained in chapter 3 of part 2 Finance Act 2012.
Proposed revisions
Legislation in Finance Bill 2021-22 will introduce an enabling power to allow regulations to be made in secondary legislation.
Summary of impacts
Exchequer impact (£m)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| nil | nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant economic impacts.
The terms used in this section are defined in line with the Office for Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.
Impact on individuals, households and families
This measure is expected to have no impact on individuals as it is purely an enabling power. There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have no impact on businesses or civil society organisations as it is purely an enabling power.
Operational impact (£m) (HMRC or other)
This measure carries no costs to HMRC at this stage. Officials will be able to advise on any future funding requirement depending on the outcome of further consultation.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The impact of the proposed changes will be kept under review through regular communication with industry representative groups.
Further advice
If you have any questions about this change, please contact Hilary Smith, Insurance Policy and Technical Team on Telephone: 03000 530934 or email: hilary.smith1@hmrc.gov.uk.