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HMRC internal manual

General Insurance Manual

Captive insurers: controlled foreign companies (CFCs): funded accounting

In the case of captives using annual accounting, the same rules apply as to other CFCs. Some captive insurers use funded, or non-annual accounting (see GIM4140), although this is no longer available under UK accounting following the 2005 ABI SORP. Where the accounting is non-annual, the delay in closing the underwriting year may make it difficult for the UK parent of the captive to ascertain whether the captive it is subject to a lower level of taxation, and hence whether it falls within the definition of a CFC. In addition to this a CFC which uses funded accounting will not usually finalise its accounts early enough for it to be able to pursue an ADP within the normal 18 month time limit. There are, therefore, special rules governing the time limits for amending returns, opening enquiries, and the payment of dividends. These have important implications for risk assessment.

INTM213010 to INTM213100 contain detailed guidance on the application of the CFC rules to CFCs carrying on general insurance business. The following paragraphs summarise this guidance and give examples of its application.