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HMRC internal manual

General Insurance Manual

Technical provisions: periods of account beginning on or after 1 January 2000 and ending before 19 July 2007: General Insurance Reserves (Tax) Regulations: adjustments where there was a deficiency and a section 107(4) election had been made

Regulation 3: Rule 8A: adjustments where there was a deficiency and a section 107(4) election had been made

Rule 8A was introduced by the 2003 amendments to the General Insurance Reserves (Tax) Regulations. It modified the calculations but only where

  • the result of Rule 8 was a deficiency, and
  • an election under section 107(4) had been made for any previous period, whether it was the ’earlier period’ (the period of the original provisions) or not, in respect of the provisions which were the subject of the calculation.

Insurers could disclaim provisions thus increasing trading profits for the period in which the disclaimer was made. No limit was set on the amount which could be disclaimed. These increased profits might then be covered by losses of some description. Hence no tax would actually be paid on the increased profits. In the following accounting period the FA00/S107 calculations would require a comparison of the cost of settling liabilities with a figure of original provisions for the same earlier period. If the original provisions had all been disclaimed they would be nil, and the FA00/S107 calculations would inevitably give rise to a deficiency and a deduction in the Case I computation. This gave a mismatch between interest paid to and by the Exchequer which was not intended by the election regime in FA00/S107 (4).

For periods of account ending on or after 5 December 2003, where the result of the initial application of Rule 8 to the provisions for any earlier period of account was a net deficiency and there had been an election under FA00/S107 (4) in relation to those provisions, the calculations had to be redone, from Rule 6 onwards.

There had to be added to the original provisions for the earlier period (which would be the amount after any FA00/S107 disclaimer) any losses, group relief, loan relationships deficits, losses on intangible assets or charges that were set against profits for the period in respect of which the election was made.

Amendment to Rule 8A in 2005

It was not the intention of Rule 8A that more than the amount disclaimed in the earlier period should be added to the original provisions. A minor change was made to this Rule by SI2005/3289 to put this beyond doubt. The change applied to accounting periods ending on or after 21 December 2005. For periods ending before date, the rule was applied in the same way as after the change.