Syndicate accounts: overview of accounting and tax
The accounting rules
Accounting rules for insurance undertakings are set out in the European Insurance Accounts Directive of 1991 (‘IAD’). GIM2000+ in the General Insurance Manual (see LLM10000) gives more on insurance accounting. The IAD was implemented in UK law as Schedule 9A to the Companies Act 1985, replaced from 6 April 2008 by Schedule 3 to The Large and Medium- sized Companies and Groups (Accounts and Reports) Regulations 2008.
However, different accounting arrangements for Lloyd’s syndicate and aggregate accounts (the Lloyd’s ‘global’ accounts) were specified in an Annex to the Directive. These arrangements continued in the form of three-year fund accounting which had traditionally been used in the market (LLM2020). In 2003, the Modernisation of Accounts Directive (2003/51/EC) repealed the Lloyd’s Annex and changed Lloyd’s accounting to an annual basis and aligned the accounting requirements for Lloyd’s syndicates to the requirements for other types of insurance undertaking.
In consequence, from 1 January 2005 Lloyd’s syndicates have prepared annually accounted results in accordance with UK GAAP, and company law. Also from 1 January 2005, Lloyd’s as whole has produced its global results, which aggregate (rather than consolidate) all the syndicate results, on an annually accounted basis under UK GAAP.
The tax rules
A syndicate has no legal personality and is not a taxpayer. Members of syndicates are taxable on their proportionate share of the profit or loss of the business conducted by the syndicate, in accordance with rules in Finance Act 1993 for individual members (LLM5000) and Finance Act 1994 for corporate members (LLM4000).
Syndicate results are the key component of a member’s taxable profits or losses from Lloyd’s that are taxable on the ‘declaration basis’ (see LLM4060 in relation to corporate members and LLM5230 in relation to individual members). Syndicate results include
- the profit or losses arising directly from membership of one or more syndicates, and
- the profits or losses from assets forming part of a premium trust fund
as set out in FA93/S172 (1)(a) and (b) and FA94/S219 (2).
The syndicate’s profit or loss for tax purposes is computed in accordance with the normal rules for computing trade income. Regulations require a return of the syndicate result to be made to HMRC (LLM2180). The syndicate result is then apportioned to the members of the syndicate, who then include their share of the profit or loss in their own tax returns. Private members do not usually prepare accounts of their own. A corporate member will include the results of their aggregate syndicate participations in their own accounts which they prepare in accordance with company law.