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HMRC internal manual

General Insurance Manual

Mutual insurance: change of status to non-mutual: transitional issues

Where a company ceases to be a mutual general insurer, its underwriting profits for subsequent accounting periods are brought into as trading income as described in GIM4000+ and GIM5000+. But there are some transitional issues.

CG assets

Unless assets on which a chargeable gains would arise (such as shares and land) are disposed of and reacquired before the end of the mutual period, gains which accrued but were not realised during the period of mutuality would be included within trading receipts when the asset is disposed of. TCGA92/S161 does not apply in this situation as the assets are trading stock within the meaning of TCGA92/S288 both before and after the transfer.

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Loan relationships, financial instruments and derivatives

The only differences between the mutual and post mutual treatment are

  • the special rules described in GIM9090 no longer apply
  • profits and losses on loan relationships and derivative contracts (including exchange gains and losses) will become trading receipts and expenses.

See GIM9060 for accounting periods ending before 1 October 2002.

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Equalisation reserves

The company will have been required to maintain equalisation reserves for regulatory purposes, unless it counts as an assessable mutual (see below), but these will have had no effect on the tax position of a mutual. For its non-mutual periods the company’s deductions and receipts in relation to transfers to and from the reserve will follow the changes for those periods as reflected in the regulatory reserve. See GIM7360.

‘Assessable mutual’ is a regulatory term, defined as a mutual whose business is solely mutual and whose members must meet any deficiencies - a simple mutual in other words.

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Other technical provisions

Opening technical provisions, claims outstanding, unearned premium provision (UPP) and unexpired risk provision (URP), will be shown in the company’s accounts - see GIM2100 and GIM2130. Where the first period of non-mutuality is a period beginning on or after 1 January 2000, and ending before 19 July 2007, FA00/S107 will apply. In making the calculations no amounts will be treated as taken into account for tax purposes for mutual periods. See GIM6150+ for further details of FA00/S107. The rules of FA07/SCH11 and SI2009/1926 will apply in principle for non-mutual accounting periods beginning on or after 19 July 2007. GIM6150 explains the commencement provisions in detail.