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HMRC internal manual

Lloyd's Manual

Double taxation relief: corporate members: pre-pooling rules: a practical approach

The allocation of US income over the three syndicate years will normally determine howthe US tax paid in a calendar year is allocated to syndicate years of account. There is nomethodology set out in legislation to do this, but the HMRC view is that twoqualifications should apply where US tax is not first restricted to the UK CT rate. Firsta US loss in one or more syndicate years should not give rise to negative amounts of UStax in those years. Second, any re-allocation of expenses such as profit commission is tobe made in terms of an adjustment to profits or losses and not in terms of amounts ofnegative US tax or giving rise to negative US tax amounts. Negative amounts of US tax areto be set at nil and the sum of all positive amounts should equal the total US tax chargedfor the relevant calendar year.

Subject to these qualifications, HMRC will accept any reasonable allocation of income (andthe related tax) to years of account. The proportion which can be reallocated must be aproportion that reflects those expenses allowed in the UK result. The reallocation must becarried out on a consistent basis or not at all.


In this example the tax rates are assumed to be 34% in the US and 30% in the UK. Acorporate member makes a profit of £1000 before expenses on its US business in the 1999year of account business carried on by a syndicate. In the US the managing agent has paidtax on these profits in the years 1999, 2000 and 2001, but in each case other years ofaccount also contributed to the US tax charge. The total amounts of tax paid were:

1999 £500 (includes part of 1997 and 1998)
2000 £200 (includes part of 1998 and 1999)
2001 £400 (includes part of 1999 and 2000)

Expenses of £200 are allowed in the UK against the 1999 year of account. In the USthese are allowed in the 2002 calendar year. In the UK tax is therefore based on profitsof £800 in 2002.

The member chooses to allocate the US tax to the 1999 year of account as follows:

1999 200
2000 0
2001 140
Total 340
Less reallocated 68
Net 272

The amount the member chooses to reallocate to the 2002 year of account is £200 @ 34% = £68. This is treated as US tax paid in 2002.

The £272 is available as credit relief against UK tax on the profits declared in 2002,subject to the usual limit based on UK tax, i.e. £800 @ 30% = £240.