Corporate members: taxation of syndicate profits: the declaration basis
The rules for allocating syndicate profits to accounting periods for tax purposes are provided by FA94/S220, which applies a declaration basis.
Syndicate profits are divided into
- those arising directly from the membership of one or more syndicates (FA94/S220 (2)(a))
- those arising from assets forming part of a premium trust fund (PTF) (FA94/S220 (2)(b)).
The second category is discussed at LLM4090.
FA94/S220 (2)(a) provides that the profits or losses arising directly from syndicate membership shall be taken to be those of any previous year or years which are declared in that year. ‘Declaration’ takes place when a syndicate notifies its results to Lloyd’s - usually in the April or May after the syndicate closes.
This declaration basis means that profits or losses are deferred for tax purposes. In the example at LLM4030, a corporate member made up its accounts for the year ended 31 December 2006. The accounts profits (or losses) were made up from profits or losses relating to participation in 2004, 2005 and 2006 syndicates.
However, its taxable profits (or losses) for the accounting period are those of 2003 accounts, since the 2003 syndicates close at 31 December 2005, and declare their results in April/May 2006. This deferral reflects the fact that profits earned are not distributed to the corporate member by the managing agent until after the date of declaration of profits.
Calendar year accounting periods
The allocation of syndicate profits to accounting periods is straightforward if the corporate member makes up its accounts for a calendar year, as most do.
A corporate member makes up its accounts for the year ended 31 December 2006.
2003 syndicates close at 31 December 2005, and declare a result in April/May 2006.
The taxable profits for the corporate member for the year ended 31 December 2006 will therefore include the profits (or losses) of 2003 syndicates, since these are the profits declared in the year ended 31 December 2006.
The allocation of profits where the corporate member has a non calendar year accounting period is explained in LLM4070.
Run-off syndicates (LLM2070) declare a result following the end of the third year, and then every year until they finally close. These results are also assessed on a declaration basis.
For example, if a 2003 syndicate was unable to close at the end of 2005 the syndicate would declare a result in 2006 and each later year until it finally managed to close in (say) 2009.
A member of that syndicate would include in its accounts each year its share of any profit or loss declared by the 2003 syndicate in the year. The member would therefore have an entry in the accounts for each year ending 31 December 2006, 2007, 2008 and 2009 (assuming it had a 31 December accounting date).