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HMRC internal manual

Lloyd's Manual

Corporate members: taxation: general rules

FA94/S219 to FA94/S230 contain specific tax legislation relating to corporate members. Its aim is, broadly, to provide for the taxation of corporate members on an equivalent basis to that on which individual members are taxed, and to provide even-handed treatment, as far as possible, between corporate members and other corporate entities, particularly insurance companies. The legislation can be summarised as follows

  • corporate members are chargeable to corporation tax on the profits of their underwriting business on the basis of the profits which arise for an accounting period
  • profits arising directly from the membership of syndicates, or from assets forming part of a premium trust fund (PTF, see LLM2130), are taxed on a declaration basis and allocated to accounting periods (LLM4060)
  • there is an exception from the previous rule governing PTF profits in the case of aligned members (see LLM1090) if those profits arise on “member capital” (LLM4105)
  • other profits, including those arising from member capital, are taxed according to the normal rules for companies.

Syndicate profits: general

The syndicate profits or losses of a corporate member are the aggregate of its shares in the profits or losses of all the syndicates of which it is a member. There are two main elements to syndicate profits: underwriting profits, and profits or gains arising on assets held in premium trust funds.

Underwriting profits

Profits arising to the corporate member “directly from its membership of one or more syndicates” (FA94/S220 (1) and (2)) are the results of the syndicate’s underwriting for a year of account. Broadly, this means the premiums it takes less the costs of settling policyholders’ claims and the reinsurance to close premium it pays. See LLM4150 regarding the treatment of other reinsurance premiums.

Case and schedule of charge

FA94/S219 provides that both the profits and losses arising to a corporate member directly from its membership of syndicates and the profits or losses arising from assets forming part of an ancillary trust fund (ATF) are computed under Case I of Schedule D. No part of the syndicate profits is to be computed under any other Schedule or under any other case of Schedule D.

Profits and losses on assets subject to the loan relationships and derivative contracts rules will be treated as trading receipts and expenses and so will be included in the corporate member’s Case I profit or loss. Gains on the disposal of equities and other assets will be charged under Case I on the basis used in the accounts. From 1998 onwards, this is ‘mark to market’ (MTM) in accordance with accounting standards for insurers. Where such assets were taxed on the ‘realisation basis’, rules in FA02/S65 and FA02/S66 permitted that basis to continue to be used in certain circumstances.

GIM5000 in the General Insurance Manual (see LLM10000) has more details on MTM, the ‘realisation basis’ and the transitional rules in FA02 which eased the transition for companies in the accounting period in which they began to follow MTM for tax purposes. These transitional rules apply to Lloyd’s corporate members in the same way as to other general insurers, by virtue of section FA02/S65 (1)(b).

Determination of syndicate profit

FA94/S221 applies all of the provisions in FA93 for assessment and collection of tax to corporate members. Up to 2005 this included FA93/SCH19. From 2006, FA93/SCH19 is replaced by the Lloyd’s Underwriters (Tax) Regulations 2005, SI2005/3338. The syndicate profits or losses on which corporate members are actually assessed to tax are derived from syndicate determinations. Members have no right of appeal against these determinations (LLM2180).