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HMRC internal manual

General Insurance Manual

Equalisation reserves: recalculation of reserves for tax purposes

Companies may be required to recalculate their equalisation reserve for tax purposes in a number of circumstances, namely where

  • the regulatory returns are drawn up wholly or partially using a non-annual basis of accounting, but tax returns are based on annual accident year accounts (GIM7140)
  • credit insurance business equalisation reserves have been accumulated prior to accounting periods ending on or after 31 December 1996 (GIM7260)
  • the insurer operates partly on a mutual, and partly on a non-mutual basis (GIM7360)
  • the reserve has been challenged on anti-avoidance lines (GIM7350).

Regulation 3 of the tax Regulations provides that a separate reserve will be maintained until such time as the regulatory reserve naturally coincides with it.

There is an example of a shadow reserve calculation at GIM7240.