Mutual insurance: particular types: health mutuals: is the business mutual?
The essential features for a trade to be mutual trading are set out at GIM9010+. There is no relaxation of these criteria in the case of mutual health insurers. The tests are applied in the same way as for any other mutual insurer. In particular, any surplus must go back to the contributors.
The constitutions of a number of mutual health insurers meant that they were not carrying on mutual business, mainly because rules precluded the contributors from controlling the insurer. Following discussions with the British Health Care Association (the body representing the majority of the insurers involved), it was agreed that those mutual health insurers who had hitherto been treated as mutual traders, but whose rules on examination were found to be inconsistent with such treatment, could either
- accept that they were not carrying on a mutual business (and so accept that trading income principles applied to all their trading income, including from dealings with members), or
- make the necessary changes to their rules/constitution to comply with the requirements for mutual trading.
Closed years were not re-opened and the changeover took place from an agreed date. See GIM9160 for further guidance on the tax issues arising on a change of status.
A health insurer which opted for the trading income alternative might at a future date (and for commercial reasons) wish to amend its constitution/rules to conform with the requirements for mutual trading. This is acceptable where there are sound reasons for so. Any case where the change appears to be designed to secure a tax advantage will be examined critically.