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HMRC internal manual

General Insurance Manual

From
HM Revenue & Customs
Updated
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Equalisation Reserves: the tax rules: differences between accounting periods and financial years

The period for which the equalisation reserves rules require equalisation reserves to be calculated and maintained is described as an equalisation period (ICTA88/S444BA (9)(a)). In practice this will be called a financial year or underwriting year.

Where the equalisation period year does not correspond to a tax accounting period, ICTA88/S444BA (9) allows an apportionment of transfers in and out of the reserve to an accounting period in proportion to the number of days by which the two overlap.

The regulator’s rules on permissible periods are different from those for tax and for example permit a financial year to run for more than one calendar year. An accounting period cannot exceed one calendar year, so for tax purposes there will be two accounting periods falling within the extended financial year.