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HMRC internal manual

General Insurance Manual

Reinsurance and other forms of risk transfer: financial reinsurance and alternative risk transfer (ART): insurance linked securities: removal of special tax treatment (condition A)

The corporation and income tax advantages allowed by Regulations 4 and 5 of the Risk Transformation (Tax) Regulations 2017 are removed if Condition A (Regulation 7) is met.

This condition is met if a QTV incurs certain penalties – which are summarised below - under Paragraph 17 of Schedule 18 to Finance Act 1988 or Schedule 24 to Finance Act 2007 below.  It is not appropriate to give special tax treatment to QTVs – including QTVs that are protected cell companies - that repeatedly fail to deliver company tax returns or deliberately submit an inaccurate return.

Paragraph 17 of Schedule 18 to Finance Act 1988

If a company is,

  • within the charge to CT for three consecutive accounting periods for which returns have been required, and
  • is liable to a flat-rate penalty for each of the first two of those periods, and
  • fails to make a proper delivery of the return for the third of those periods, then
  • the amount of the penalty for the third period is increased to £500 or £1,000 depending upon how late the return is.

If a QTV incurs an increased penalty under paragraph 17 (3) then the special tax treatment is removed for the accounting period for which the penalty liability arises and any subsequent accounting period.  A protected cell company that fails to deliver a company tax return for three consecutive accounting period would therefore lose the special tax treatment for all its cells.

Schedule 24 to Finance Act 2007

If a QTV incurs a penalty under this Schedule in respect of an inaccuracy in a return that is either “deliberate but not concealed” or “deliberate and concealed” then the special tax treatment is removed for the accounting period for which the penalty liability arises and any subsequent accounting period.  As above a protected cell company that delivers a deliberately inaccurate company tax return would lose the special tax treatment for all its cells.

Appeals

If an appeal is made against either type of penalty and the penalty is subsequently wholly set aside then the special tax treatment given to the QTV is reinstated and any corporation and income tax paid by the QTV will be repayable.