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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: example


In the 2003 period of account, provisions of £1m were wholly disclaimed by a FA00/S107 (4) election.

The resulting addition of £1m to Case I profits was partly covered by group relief of £600,000.

For the 2004 period of account, the discounted cost of settling liabilities (less a 5% margin of error) was £900,000. There is a deficiency of £900,000 found by the initial application of Rule 8.

The conditions for the operation of Rule 8A exist (see GIM6290), and it requires a comparison of the original provisions for the 2003 period of account of £600,000 (that is, £1m provisions in the accounts, less £1m disclaimed, plus £600,000 group relief), with the cost of settling liabilities of £900,000. The section 107(3) deficiency is therefore £300,000, not £900,000 as would have been the case before Rule 8A was introduced.

Note that the amount added to the figure of original provisions for the earlier period cannot exceed the original provisions. So in this example if provisions of £1m were disclaimed and the amount of group relief claimed had been £1.5m, the amount added to the provisions for the purposes of the FA00/S107 calculations would only be £1m. In this way any actual deterioration of the technical provisions after the earlier period is not affected by Rule 8A.

Rule 8A did not convert a deficiency into an excess. So to continue this example, if provisions of £1m were disclaimed, group relief of £600,000 was claimed, but the cost of settling liabilities in 2004 was £400,000, the comparison would be between original provisions of £600,000, and £400,000. This would be an excess of £200,000 under FA00/S107 (2). However, in this case the result of Rule 8A would be neither an excess nor a deficiency.

The figure arrived at under Rule 8A was used only for the purposes of calculating the interest charge under Rule 9. It did not affect the amount of any adjustments for the ‘intervening periods’ to be made in carrying out any future calculations for the same earlier period.