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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Technical provisions: Schedule 11 FA2007: paragraph 1 restriction on amount of technical provisions

Restriction on amount of provisions

FA07/SCH11/PARA1 may limit the amount of provisions allowed for tax purposes. But they will be those stated in the accounts for that period unless an officer of HM Revenue & Customs considers that the provisions exceed ‘the appropriate amount’, which is defined in Regulations (see GIM6600).

The phrase ‘an officer considers’ refers to consideration in the course of a tax enquiry under FA98/SCH18. It follows that general insurers will not by statute self-assess an adjustment to the accounts figure, although GIM6620 authorises HMRC officers to accept a figure alternative to that appearing in the accounts if it is put forward by the company as representing the opinion of a skilled person (normally an actuary).

FA07/SCH11/PARA1 does not alter the machinery for making tax enquiries, for settling them, or for making an amendment to the general insurer’s self-assessment(s) where needed, and nor does it alter the general insurer’s right of appeal against any such amendment(s).

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Adjusting provisions

FA07/SCH11/PARA1 (2) and (3) together make clear that, where provisions are shown to exceed the appropriate amount for a period of account, the excess is not allowed for tax purposes as a deduction in that period. The profits of the next period of account are then ‘adjusted accordingly’; in other words any amount not allowed in one period is allowed in the next. Although the legislation does not explicitly cover the situation where under Part 7 of the Financial Services and Markets Act 2000 the activities affected have been transferred, the compensating adjustment must be made in the accounts of the successor. In any case, the transfer of a trade between unconnected companies would be a strong indicator in the risk assessment process that the provisions are acceptable.

The usual considerations of whether the taxpayer’s return for a period was fraudulently or negligently delivered apply in principle; but, having regard to the fact that this is an inherently uncertain area, are unlikely to be relevant.

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Adjustment by reference to the time provisions were made

FA07/SCH11/PARA1 (5) makes clear that the question of whether the provisions exceed the appropriate amount is to be determined by reference to events prevailing at the time the provisions were made, and not with the benefit of hindsight. This principle is also reflected in the Regulations governing the appropriate amount (see GIM6640).