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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Technical provisions

This section provides guidance on the taxation of the technical provisions that are found in the accounts of general insurers.

The technical provisions of a general insurer comprise various items which are shown both in the accounts and in the regulatory return. Apart from investment assets, the technical provisions are likely to be the biggest items in the balance sheet and adjustments to them the biggest items in the income statement. The term ’technical provisions’ is an all-embracing term used in the Insurance Accounts Directive (IAD) (GIM2020) to cover (for general insurance) provisions for items such as unearned premiums, unexpired risks, claims outstanding (whether or not reported), equalisation. See GIM7000+ for the tax treatment of equalisation provisions/reserves. In this manual the words ‘provision’ and ‘reserve’ can generally be regarded as interchangeable. The insurance industry tends to use both, but most of the items (except equalisation) would fall in accounting terms to be regarded as provisions, describing liabilities which have been incurred (or deferring income).

This Chapter is split into three parts as follows.

GIM6010+ contains background material including an explanation of the ‘unearned premium provision’ (UPP) and the ‘unexpired risks provision’ (URP). It also deals with the tax treatment of technical provisions before the introduction of FA00/S107 (namely for periods of account beginning before 1 January 2000).

GIM6145+ deals with the tax treatment of technical provisions under FA00/S107 (for periods of account beginning on or after 1 January 2000 and ending before 19 July 2007. There is a short transitional provision relating to FA00/S107 (4) described in GIM6180.

GIM6500+ deals with the tax treatment of technical provisions under FA07/SCH11 (for periods of account ending on or after 19 July 2007). These provisions depend on secondary legislation (regulations) which was not laid until July 2009. In practice the new regime applies to most insurers for calendar year 2009 onwards.