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HMRC internal manual

General Insurance Manual

Taxation of general insurance: funded accounting: CTSA implications

Since 2005, funded accounting will only be encountered in companies governed by overseas company law. Where a company uses funded accounting, it will not be possible to examine the Case I profit or loss figure for a particular year until the accounts and computations for one, two or three further years have been received. Nonetheless, companies are expected to submit a CTSA return at the usual time, containing the best estimate possible of the final liability, and to pay tax on the basis of that return. See GIM4140. FA98/SCH18/PARA85 extends the time limit for amending a corporation tax self assessment for general insurance companies using non-annual accounting. The company may make an amendment within 12 months from the date on which the technical provision is replaced. HMRC is allowed two years from this date to enquire into the return.

The date of the replacement of the technical provision is the date the accounts are signed off. In practice this will be some time after the balance sheet date. For example, a foreign company using three-year funded accounting prepares accounts for year 1 to 31 December 2004. The fund at the end of this year is the figure the company uses provisionally for its CTSA return and on which it pays tax. The fund for year 1 is closed when the company prepares its accounts for the year ended 31 December 2006. The accounts are signed off, say, on 30 April 2007. This is the date on which the technical provision is replaced and on which the enquiry window opens. This is different from the usual position under CTSA. Here the enquiry window is based on an accounting concept (the date the accounts are finalised) and not on the date of the submission of a return or an amended return. Because of this, HMRC is empowered to make assumptions about when the accounts are signed off.