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HMRC internal manual

Lloyd's Manual

Reinsurance to close (RITC) and technical provisions: taxation before and after section 107 FA 2000

Before section 107 FA 2000

FA00/S107 superseded legislation in FA 1993 and FA 1994 on the taxation of the RITC forming part of underwriting profits declared in periods of account beginning on or after 31 December 1999 (see LLM3010). FA93/S177 and FA94/S224 applied where a member participated on both the syndicate that paid the RITC premium and on the syndicate that received it. It required the RITC to be ‘fair and reasonable’ for tax purposes, meaning (broadly) that it should be calculated no profit/no loss basis. Where the RITC was excessive, part of the RITC would be added back in the tax computation of the paying syndicate, based on the proportion of the syndicate capacity held by continuing members. The amount disallowed was deducted in the tax computations of the receiving syndicate.

The ‘fair and reasonable’ formula was tested in an appeal before the City General Commissioners in 1999. Rather than pursue the matter to an authoritative decision from the courts, it was decided to enact FA00/S107.

After repeal of section 107 FA 2000

GIM6150 and GIM6180 describe the background to the repeal of FA00/S107, including the transitional arrangements, and GIM6150 also describes the background to the replacement legislation in FA07/SCH11. LLM3300+ describes the adaptations of the replacement rules to Lloyd’s syndicates.