Explanatory note

These Regulations are made under provisions contained in sections 444BA to 444BD of the Income and Corporation Taxes Act 1988 (“the Taxes Act”). (Sections 444BA to 444BD were inserted by paragraph 1 of Schedule 32 to the Finance Act 1996.) After dealing, in Part I, with certain general matters, the Regulations make provision, in Parts II and III, for the taxation of two different types of equalisation reserve which are required to be maintained by insurance companies.

Part I of the Regulations is of general application. Regulation 1 makes provision for citation, commencement and effect, and regulation 2 for interpretation. Regulation 3 provides that where the amount of an equalisation reserve for the purposes of the Tax Acts differs from the amount of that reserve for regulatory purposes (as defined) then two separate computations shall be made until the two computations produce the same opening balance for an accounting period.

Part II of the Regulations contains provisions relating to an equalisation reserve which an insurance company is required to maintain, by virtue of regulations made under section 34A of the Insurance Companies Act 1982 (“the 1982 Act”), in respect of certain types of general business. (Section 34A was inserted by section 1(1) of the Insurance Companies (Reserves) Act 1995 (c. 29).) This Part of these Regulations also applies to a reserve which is an equivalent reserve by virtue of section 444BD(2) of the Taxes Act.

Regulation 4 sets out the scope of this Part of these Regulations.

Regulation 5 applies where an insurance company has prepared accounts on a non-annual basis, and has submitted a return, based on accounts prepared on an annual basis, to an officer of the Board. The regulation provides for the amounts shown in the accounts prepared on a non-annual basis to be adjusted for the purposes of computations under the Taxes Acts.

Regulation 6 applies in the case of an insurance company which carries on both mutual business and business which is not mutual business, and confines the operation of section 444BA to business which is not mutual business.

Regulation 7 applies to a company which is an EC company within the meaning of the 1982 Act, regulation 8 to a company which is resident in the United Kingdom but which carries on insurance business only outside the United Kingdom, and regulation 9 to a company which is not resident in the United Kingdom but which carries on business in the United Kingdom through a branch or agency and which maintains an equalisation reserve by virtue of section 34A regulations. These regulations make provision for section 444BA to apply to such a company if conditions relating to the keeping of suitable accounts and the provision of information to the Inland Revenue are satisfied, and also provide for any balance in the equalisation reserve to be brought into charge for the purposes of the Tax Acts if those conditions cease to be satisfied.

Regulation 10 applies where an insurance company is carrying on business by reference to which double taxation relief is afforded in respect of any income or gains, and provides that only the amounts apportioned to business carried on through branches outside the United Kingdom shall be brought into account for the purposes of computing the profits or losses by reference to which double taxation relief is afforded. The regulation also makes provision for the computations to be made in cases where subsections (4) to (6) of section 444BA apply.

Part III of the Regulations contains provisions relating to an equalisation reserve which an insurance company is required to maintain in respect of its credit insurance business.

Regulation 11 sets out the scope of this Part of these Regulations.

Regulation 12 makes provision for section 444BA to apply where an insurance company maintains a credit insurance equalisation reserve for any accounting period.

Regulation 13 provides that paragraph 2(2) of Schedule 2 to the Insurance Companies (Reserves) Regulations 1996 (S.I. 1996/946) (which provides for the amount of a reserve maintained pursuant to regulations 76 to 78 of, and Schedule 14 to, the Insurance Companies Regulations 1994 (S.I. 1994/1516) to be transferred to the credit insurance equalisation reserve) shall be disregarded for the purposes of the Tax Acts in determining how much is required to be transferred into an insurance company’s credit insurance equalisation reserve.

Regulation 14 provides for regulations 5, 6, 9 and 10 to have effect, subject to regulation 13, in relation to any credit insurance equalisation reserve as they have effect in relation to any reserve to which Part II of these Regulations applies.