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HMRC internal manual

General Insurance Manual

Taxation of general insurance: business in run-off

The ABI 2005 SORP (paragraphs 136 to 139) applies the provisions of FRS 3 (Reporting Financial Performance) where a decision has been taken to cease writing the whole or a ‘material category’, defined as a discrete segment, of the business. The SORP requires provision to be made for the full amount of the costs of running off the business no longer being written. Expected future investment return not already recognised in calculating technical provisions should be taken into account and disclosed. The practical effect of this is that the company must begin to discount its claims reserves, which may appear inconsistent with regulation 54 of the accounting Regulations. Where such a change in accounting treatment takes effect after 6 April 1999, the tax treatment was originally governed by FA98/S44, while FA02/S65 applies to changes on or after 1 August 2001. So long as the accounts are given a true and fair view certificate, the treatment may be followed for tax purposes. Any prior period adjustment disclosed as a result of the change will be charged to tax (or relieved if negative) under the provisions of FA98/SCH6 or FA02/SCH22.