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HMRC internal manual

General Insurance Manual

Captive insurers: controlled foreign companies (CFCs): funded accounting: special tax rules: time limits for enquiries, returns and payment of dividends where an acceptable distribution policy (ADP) is followed: accounting periods beginning


A UK company with a relevant interest in a CFC has an accounting period ended 31 December 2000. The CFC has an accounting period ended 31 December 2000 and has a two year funded account for the underwriting year ended 31 December 2000, which will close on 31 December 2001. The accounts may be signed off on, say 14 April 2002.


The UK company may submit its return claiming that the CFC is exempt because it intends to pursue an acceptable distribution policy (ADP) for that accounting period. Provided the statement on the original return remains correct because it is still the intention to pursue an ADP, no amendment is necessary to the UK company’s return. Only if there is a failure to pursue the ADP, or there is a change of intention, would an amended return be required. The following time limits are therefore relevant:

  • The UK company has to submit its original CTSA return by 31 December 2001 in the usual way.
  • The UK company has until 31 December 2002 in which to amend its return and the Revenue’s enquiry window runs to the same date in respect of the original return. The UK company may wish to amend its return, and the Revenue may wish to enquire into the return, for reasons not connected to underwriting results.
  • The CFC must pay a dividend by 13 October 2003, 18 months after the date of the replacement of the technical provision. Where the dividend is paid after 30 June 2002 (18 months after the end of the accounting period) it will be subject to enhancement by the interest factor in the modified ICTA88/SCH25/PARA2.
  • If the CFC in this example used four-year funded accounting, the dividend would have to be paid by 30 June 2005, that is 18 months after the deemed closure of the fund on 31 December 2003. The dividend enhancement rules will still apply to any dividend paid after 30 June 2002.

The ADP exemption was repealed by FA09/SCH16 Part 1 for accounting periods beginning on or after 1 July 2009.