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HMRC internal manual

Lloyd's Manual

Double taxation relief: individual Names: refunds of foreign tax

Special rules are provided in the Regulations which treat refunds of Lloyd’s foreigntax as tax of the year in which the refund is received. This is in part because refunds ofUS tax are relatively common for Names. The foreign tax refund is treated either asadditional income of the year (regulation 9(1) SI1997/405), or additional tax due onLloyd’s profits for the year (regulation 9(2) SI 1997/405), depending on how reliefwas originally given for the tax now being refunded. This removes the need to revisit theassessment in which relief was given.

These rules apply to all refunds of Lloyd’s foreign tax received on or after 6 April1996, even though relief may originally have been given in a year before the DTRRegulations came into force. See LLM7080 where the refunds arereceived after a Name’s final tax year as a member of Lloyd’s.

Names are specifically exempted from the requirement in ICTA88/S806 (3) to notify HMRCwithin one year of adjustments to foreign tax for which relief from UK tax has beenclaimed. Because refunds of Lloyd’s foreign tax are generally treated as eitheradditional income or additional tax of the year of receipt, the normal self assessmentrules require Names to include details of the refund in the relevant SA tax return.

Relief originally given by way of credit against UK tax

Refunds of foreign tax for which relief was given by way of credit against UK tax onearlier years’ Lloyd’s profits are treated as additional tax chargeable onLloyd’s profits of the tax year corresponding to the calendar year of receipt(regulation 9(2) SI1997/405). The exchange rate used is the same rate that was used tocalculate the amount of tax credit relief given for the foreign tax in the earlier year,which may differ from the sterling amount actually received in the later year.

Relief originally given by deduction

Refunds of foreign tax for which relief was originally given by deduction from earlieryears’ Lloyd’s profits or losses are added to the Lloyd’s income of theyear of receipt (regulation 9(1) SI1997/405).

Tax credit relief originally given for only part of refund

In some circumstances (usually where there is insufficient UK tax due on Lloyd’sprofits for the year), tax credit relief is given for less than the full amount of foreigntax available for relief. If the Name subsequently receives a refund of some or all of theforeign tax that was available for relief, then the refund is treated first of all as arefund of the foreign tax for which tax credit relief was not given. If the refund exceedsthat amount, then the balance is added to the tax due on Lloyd’s profits for the taxyear corresponding to the calendar year the refund is received (regulation 9(3)SI1997/405).

Refunds of US tax (NOLs)

Under US tax rules, trading losses can be taken back and offset against the profits ofthe three preceding years, earliest year first, and then forward 15 years. These arecommonly referred to as Net Operating Losses or NOLs. To the extent that US tax has beenpaid on earlier years’ US profits, carrying the losses back will generate a repaymentof US tax which Lloyd’s reports to Names on the relevant Members Support UnitTaxation Advice.