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HMRC internal manual

General Insurance Manual

Taxation of general insurance: funded accounting: other tax issues

The Revenue has in the past agreed methods different from those described above to arrive at taxable profits, recognising the difficulty of having to pay tax on estimated figures pending the final closure of the fund. For example, the company might draw up a ‘memorandum account’ prepared on an annual accident year basis, in addition to the funded basis Companies Act accounts and regulatory return. This approach was agreed with the British Insurance Association in 1978.

IPRU(INS)9.15 (GIM3110) provides that where business is accounted for in the Companies Act accounts on a non-annual basis, the FSA return forms used should be those required for underwriting basis business. It is unlikely that there will have been cases where the shareholder accounts relating to funded business were prepared on a basis different from the regulatory return, but if this were so the tax computations should have been based on the shareholder accounts.

Most general insurance companies write business in more than one accounting class. It was possible for accounts to incorporate business accounted for on both an annual and funded basis. Different parts of the tax computations may have been prepared on different bases, but the end result for any accounting period should nevertheless be a single figure for the Case I profit or loss for the general insurance trade as a whole.