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HMRC internal manual

Lloyd's Manual

Names: taxation of trade profits

Lloyd’s income is taxed as trade profits

Names do not draw up profit and loss accounts which reflect the outcome of their involvement as an underwriting member of Lloyd’s. Consequently, unlike other traders, the computation of trade profit or loss taxable under Part 2, Chapter 2 of ITTOIA 2005 does not start with the commercial profit of a set of accounts drawn up in accordance with generally accepted accounting practice (explained in the Business Income Manual at BIM31000 - see LLM10000). Instead, the various elements of income and expenditure that arise in connection with their Lloyd’s business are drawn together on the tax return and aggregated to give the taxable result.

Trade profits are the aggregate of the profit or loss from syndicate participations, investment income from assets used in connection with underwriting, ‘personal’ expenses, and receipts and payments in respect of ‘stop loss’ and ‘quota share’ insurance and the ‘special reserve fund’.

In general this Manual refers to ‘trade profits’, in accordance with the term used in ITTOIA 2005. This term is equivalent to ‘Case I’ for pre-ITTOIA periods.

Tax year in which profits arise

From 1997-98 onwards, the underwriting results of a syndicate, and of assets in the premium trust fund (LLM5050), are taxed on the so-called ‘declaration basis’ (LLM5290), that is, on the profit or loss ‘declared’ in the year. Stop loss recoveries (LLM5130) and transfers to and from a member’s special reserve fund (LLM5230) arising from those results are also taxed in the declaration year. The other elements are taxable on amounts received or paid in the ‘corresponding’ calendar year (LLM5290). These include ancillary trust fund income (LLM5060), certain expenses (LLM5150), and certain reinsurance premiums (LLM5180).

LLM8170 deals with capital gains on assets within ancillary trust funds.

Example

The trade profit or loss of an individual member for 2006-07 is therefore the sum of

  • the syndicate results and PTF income for the 2003 underwriting year, and run-off syndicates for the year to 31 December 2005 which are declared in April/May 2006
  • ancillary trust fund (ATF) income and gains received in the 2006 calendar year
  • other Lloyd’s related income and expenditure received or paid in the 2006 calendar year
  • stop loss recoveries and SRF transfers arising from the syndicate results declared in 2006-7.

LLM5050 to LLM5280 considers each of these elements of a Name’s Lloyd’s income.

LLM5460 gives an example showing how each of these is dealt with in a computation of trade profits.