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HMRC internal manual

Lloyd's Manual

HM Revenue & Customs
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Corporate members: syndicate capacity: accounting periods ending on or after 1 April 2002: International Accounting Standards

Under UK GAAP syndicate capacity is amortised over its economic life, which is taken to be less than 20 years. However, under International Accounting Standards (IAS), which UK companies may adopt from 1 January 2005, capacity may be treated as an indefinite life asset, the value of which may change from year to year. If this is the case, there will be an impairment review rather than annual amortisation. Unless the asset is impaired there will be no charge in the accounts and no tax deduction. Similarly, any increase in the accounting value of the asset may result in a reversal of tax debits previously given.

Finance Act 2005 amended FA02/SCH29 to accommodate the calculation of debits and credits for tax purposes on a change of accounting policy (FA02/SCH29/PARA116A to FA02/SCH29/PARA116H, or Part 13A). CIRD12300 (LLM10000) explains the changes.

Any change to the accounting value of the asset arising from the adoption of IAS will be recognised as a debit or credit in the period in which IAS is adopted.

The amount of the debit or credit is the difference multiplied by the fraction tax value/accounting value at the end of the earlier period. FA02/SCH29/PARA116F caps the amount of any credit to the net amount of previous debits on the asset less previous credits on the asset.

For example, capacity which originally cost 100 amortised at 5 per cent per annum and was brought within the intangibles regime at 80 may have been amortised to 65 before the adoption of IAS. If the capacity were revalued to 100 at 31/12/05, the credit under part 13A would be limited to 15. Any subsequent impairment is then given as a debit based on the tax and accounting value of 100.

Finance Act 2005 also amended FA02/SCH29/PARA6, so that where a company draws up accounts in accordance with UK GAAP, but the group consolidated accounts are drawn up in accordance with IAS, a tax deduction for amortisation shown in the UK GAAP accounts is available.