LAM04130 - Treatment of acquisition expenses from 1 January 2023: repeal of FA12/S79: FA22/SCH5/PART2 and SI2022/1164 

For accounting periods beginning before 1 January 2023, FA12/S79 required life companies writing BLAGAB to spread their adjusted acquisition expenses over 7 years for tax purposes regardless of when they were recognised in the accounts (see LAM04110).

Commercial changes in the life insurance market mean that the need for spreading has reduced in recent years. Additionally, it is more complex for life insurers writing BLAGAB to undertake the spreading calculation under IFRS 17 as there is added complexity in identifying the amounts.

Therefore, to simplify the way acquisition expenses are brought into account, FA12/S79 is repealed with effect from accounting periods beginning on or after 1 January 2023. This means that expenditure incurred after that date is no longer spread equally across 7 years. Instead, a deduction is given when amounts are recognised in the company’s income statement according to generally accepted accounting practice. This applies to all life companies writing BLAGAB, regardless of whether they have adopted IFRS or UK GAAP.

The rules in step 2 of FA12/S76 and in FA12/S77(3) continue to apply where acquisition expenses which have previously been adjusted under FA12/S79 have not yet been fully relieved. In this way, life companies continue to spread earlier years’ expenditure under the 7-year rule until the balance of any unrelieved amounts is exhausted. Similarly, any deduction for acquisition costs, such as DAC, which arose in an earlier accounting period but are recognised in an income statement in an accounting period beginning on or after 1 January 2023, continues to be disallowed by FA12/S77(3). This ensures that a deduction for acquisition costs is only given once on the transition to the new rules.