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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Technical provisions: Schedule 11 FA2007: background

GIM6180 explains that consultation with industry about repealing FA00/S107 (4) revealed widespread dissatisfaction with the burden and complexities of the FA00/S107 regime. It was regarded as tolerable only because of the flexibilities afforded by the disclaimer. These discussions led to the repeal of FA00/S107 by FA07/SCH11/PARA4 and its replacement by an accounts and principles based approach.

In the course of the consultation HMRC acknowledged that the regulatory and accounting framework in conjunction with shareholder expectations and ratings agency pressures make it unlikely that the provisions set by most general insurers will be overstated to gain a tax advantage. Equally, the industry acknowledged that it is appropriate for HMRC to have a clear basis for challenging any potential tax risks that might exist. To proceed otherwise would in effect make the provisions of general insurance companies, which collectively come to many billions of pounds, an out of bounds area for tax compliance activity.

The aim was therefore to establish a framework within which general insurers can be confident they are setting provisions acceptable for tax purposes. FA07/SCH11 provides a facility to challenge the exceptional case where a general insurer’s provisions might reflect an excessive degree of prudence. FA07/SCH11 refers to a limit called ‘the appropriate amount’, and this is defined in supporting Regulations - see GIM6600. The background and risk assessment process are discussed at GIM6640 and GIM6650.


The primary legislation applies to accounting periods ending on or after 19 July 2007, the date that Royal Assent was given to that year’s Finance Bill. FA00/S107 does not apply to any such periods, subject to the transitional provision on disclaimers described at GIM6180.

For most general insurers, those with an accounting date of 31 December, the practical effect is that FA00/S107 will last apply to the year ending 31 December 2006 and FA07/SCH11 will first apply to the year ended 31 December 2007. In practice, the industry requested a delay in implementing the appropriate amount regime, and the related Regulations did not come into force until 2009. This means that for most (calendar year accounting) general insurers, 2006 was the last year to which the complex regime provided by FA00/S107 applied, except that a limited disclaimer of provisions is permitted for 2007, and the limit provided by the appropriate amount applies for 2009 onwards.

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FA07/SCH11/PARA3 contains special rules adapting the application of the legislation to Lloyd’s underwriters. Guidance on these adaptations and the application of the rules to Lloyd’s is in Chapter 3 of the Lloyd’s Manual (LLM).