»Ê¹ÚÌåÓýapp

Up until 31 December 2012, surplus in the regulatory returns provided the base for taxation of life insurance company profits.

From 1 January 2013 taxation is based on the profit in the financial statements in line with other companies. Transitional provisions were required to ensure that all profits were taxed once but once only, on the change of basis.

In the majority of cases there was untaxed profit as at 31 December 2012, which had been recognised as profit in the financial statements but not recognised as surplus in the regulatory return. In a few cases, there will be amounts that need to be removed from the financial statements taxable profit in future years as they have already been taxed as regulatory return surplus.

FA12/SCH17/PART1 sets out the rules for calculating ‘deemed receipts or expensesâ€� which are the untaxed or unrelieved amounts to be brought into account for corporation tax purposes. »Ê¹ÚÌåÓýappse are explained briefly below and in full in .

»Ê¹ÚÌåÓýapp approach is to compare ‘the 2012 balance sheetâ€� at 31 December 2012 with ‘the 2012 periodical returnâ€� i.e. compare the balance sheet in the financial statements and the regulatory return, with provision for deemed balance sheets and returns to be put in place if these are drawn up for a different accounting period.

FA12/SCH17/PARA6 refers to the results of that comparison as the ‘total transitional differenceâ€� (TTD). »Ê¹ÚÌåÓýapp TTD is then analysed and broken down into component parts, i.e. deemed receipts and expenses. Each component is either an ‘excluded itemâ€� (FA12/SCH17/PARA7) or a ‘relevant computational itemâ€� (RCI).

»Ê¹ÚÌåÓýapp RCIs are allocated between BLAGAB, non-BLAGAB and PHI. RCIs for PHI are ignored but for BLAGAB and non-BLAGAB the resulting amounts are treated as taxable receipts or expenses in the relevant trade profits computation arising evenly each year over a ten year period from 1 January 2013, with certain exceptions FA12/SCH17/PARA11-15.

»Ê¹ÚÌåÓýapp exceptions to the spreading period above relate to ‘relevant court protected itemsâ€� where there is a court order preventing distribution of surplus. »Ê¹ÚÌåÓýapp date for spreading commencing in these cases is the later of the day the court order ceases to be in place or 1 January 2015.

In most cases the last year of deemed receipts or expenses will be 2022. A simplified example of the comparison is set out below:

Description (Asset/(liability))

FSA return (£)

Balance Sheet (£)

Difference

Rec/(Exp) (£)	Ìý	Ìý	Ìý	Ìý
Ìý	Mathematical reserves/technical provisions	(50)	(60)	(10)
Ìý	with-profit fund Form14.51/ FFA or UDS	(300)	(220)	80
Ìý	Other	20	0	(20)
Ìý	Total Transitional Difference	Ìý	50	Ìý

Allocation to BLAGAB and NON-BLAGAB	BLAGAB	Non-BLAGAB	Total £
Allocated according to rules in FA12/SCH17	10	40	50
Spread over 10 years � annual amount taxable	1	4	5

»Ê¹ÚÌåÓýappre are specific provisions which can result in the spreading being brought to an end and all the remaining amounts being brought into account. This can happen if a business is transferred under an insurance business transfer scheme (unless it is a relevant intra-group transfer) â€� and more detail is given at LAM13040. If a business ceases, other than through an insurance business transfer scheme, then any remaining deemed receipts or expenses are brought into account in the period of cessation (FA12/SCH17/PARA15).

»Ê¹ÚÌåÓýapp calculation of the total transitional difference often required detailed discussion to deal with varying circumstances between insurers. »Ê¹ÚÌåÓýapp detail of the calculations is therefore of dwindling historical interest.