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HMRC internal manual

Lloyd's Manual

Corporate members: tax treatment of expenses

Timing of expenses

Expenses which arise directly from syndicate membership are assessed on the same basis as profits arising directly from syndicate membership. This means that they are deferred, and only allowed when the corresponding profits are assessed.

On the other hand, expenses of the underwriting business that do not arise directly from syndicate membership are admissible in accordance with the normal rules for deductions from trading profits. That is, they are allowable in accordance with normal accountancy principles subject to any specific statutory provision.

Generally this will mean that they are allowable earlier than syndicate related expenses. Care is needed to classify syndicate expenses correctly.

Syndicate related expenses: section 230(2) (b) FA 94

Some expenses which might not otherwise be classed as syndicate expenses are treated as though they arise directly from membership of a syndicate. These are any expenses met on the corporate member’s behalf by the syndicate managing agent and any charge made on the corporate member by the managing agent (FA94/S230 (2) (b)).

The timing rules at section 219 and section 220 then apply, so that these expenses are allowed in the same accounting period in which the related syndicate profits are assessed. Amounts paid in respect of the 2012 year, for example, will be allowed as an expense against profits of that year when those profits are assessed. In most cases, this will be the year ended 31 December 2015 under the declarations basis. Examples of expenses allowable in accordance with FA94/S230 (2)(b) are managing agent’s commission and Central Fund contributions.

The same principle applies in respect of any premiums payable under any stop-loss insurance taken out at member-level on or after 6 December 2011 (see FA94/s225 (3D) and LLM4150)

Fees paid to a Lloyd’s adviser by a corporate member do not fall within FA94/S230 (2) (b), and are not subject to deferral for tax purposes. They are allowed on an accounts basis under normal CT rules.

Transfer pricing

See LLM2170 for the application of UK-UK transfer pricing rules to syndicate level expenses.

Stop-loss and quota share premiums

Specific provisions at FA94/S225 apply to ‘stop-loss’ and ‘quota share’ premiums payable at the level of the corporate member, rather than by the syndicate. These are explained at LLM4150 and LLM4160.

In the case of both stop-loss and quota share contracts, premiums that appear to be excessive in relation to the potential benefit gained may be restricted under CTA2009/s54(1). It is also possible that a capital asset may be acquired by payment of the premiums. Whether premiums are excessive is a matter of fact, and examination of the terms of the contract may be necessary.