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HMRC internal manual

General Insurance Manual

Equalisation reserves: the tax rules: errors in returns or accounts

If for some reason an insurer has not calculated the equalisation reserve correctly in accordance with the equalisation reserves rules, tax computations must be based on their correct application.

This is so even if the returns or accounts have been considered and accepted by the regulator. It will sometimes be the case that where errors are identified, the insurer will correct a return or statutory accounts either in that year by way of a prior year adjustment or in a subsequent year. However, this will not always be the case and it may be that the figures in tax computations and returns or accounts differ in consequence.

The rules governing shadow equalisation reserves GIM7230 do not apply in these cases, because the figures used in the tax computation will be in accordance with the equalisation reserves rules and it will be the incorrect return which is not in accordance.