The Insurance Companies (Corporation Tax Acts) (Amendment) (No. 2) Order 2008

EXPLANATORY NOTE

(This note is not part of the Order)

This Order amends sections 82E and 82F of the Finance Act 1989 (“FA 1989”) and section 432YA of the Income and Corporation Taxes Act 1988 (“ICTA”). Sections 82E and 82F were inserted into FA 1989 by S.I. 2007/1031 in consequence of changes of rules in the Prudential Sourcebook for Insurers made by the Financial Services Authority under the Financial Services and Markets Act 2000 (c.8).

Section 82D of FA 1989 and section 432YA of ICTA provide that amounts released from reserves (which arise as a consequence of changes made to the Prudential Sourcebook for Insurers) in the cases specified in those sections are to be brought into account over three years as trading receipts in computing profits in accordance with the provisions of Case I of Schedule D of ICTA. Sections 82E and 82F of FA 1989 deal with the case where the insurance business to which section 82D applies is transferred. Section 82E deals with the position of the transferor in a case where there has been a transfer of insurance business. It provides that the amounts remaining to be brought into account by the transferor at the time of the transfer are instead to be brought into account by the transferee (or transferees) unless the transferor elects to bring the amounts into account, in which case all the remaining amounts are brought into account by the transferor in the accounting period ending immediately before the transfer. Section 82F makes equivalent provision dealing with position of the transferee (or transferees).

The amendments made by this Order reverse the effect of section 82E so that the transferee brings into account the remaining amounts under section 82D only if the transferor elects for that treatment. The amendments also limit the circumstances in which the election can be made because section 82F does not operate correctly where the transferee conducts its trade on a mutual basis. The Order also corrects the operation of section 82F(6) to deal with a case where the amount of liabilities transferred to a transferee is negative.

Article 1 provides for the citation, commencement and effect of the Order.

Article 2 amends section 432YA(6) by providing that references in that section to section 82E to life assurance business are to be read as references to PHI business. It also substitutes references in section 432YA to “PHI business” for “long-term business which is not life assurance business”.

Article 3 amends section 82E by substituting new subsections (4), (6) and (7) and inserts new subsections (8) and (9). New subsections (4) and (6) apply where there is a transfer of long-term business and provides that the transferor may elect that the balance of any reserves are brought into account by the transferees after the transfer but only where the transferee is a non-profit company or the transfer is to a non-profit fund of a company which is not a non-profit company and provided that the transferee does not carry on its business on a mutual basis. New subsection (7) applies if there is no such election and provides that the balance of any reserves is brought into account as a trading receipt of the transferor immediately before the transfer. New subsection (8) and (9) are consequential amendments and define the amount the transferor is required to bring into account under section 82D after a part transfer of the transferor’s long-term business.

Article 4 makes consequential amendments to section 82F to deal with the treatment of a transferee where the transferor makes an election under section 82E(4) and inserts new subsection (6A) which deals with the case where the liabilities transferred are negative so that it is not possible to determine the appropriate amount. Subsection (6A) provides for a just and reasonable apportionment between the business transferred and business retained. A clarifying amendment is also made to subsection (6).

A full and final Impact Assessment has not been produced for this instrument as a negligible impact on the private or voluntary sectors is foreseen.