The Insurance Business Transfer Schemes (Amendment of the Corporation Tax Acts) Order 2008

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2. Contracts and Agreements for Sale of business
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5. Health and Safety in Small Businesses

PART-1

1.   Citation, commencement and effect

(1)      This Order may be cited as the Insurance Business Transfer Schemes (Amendment of the Corporation Tax Acts) Order 2008 and shall come into force on the day after this Order is made.

(2)      Articles 3, 5, 7, 8, 10, 16, 25, 27 to 28 and 31 have effect in relation to transfers of business taking place on or after the date on which this Order comes into force.

(3)      Article 4 has effect in relation to transfers of business taking place in periods of account current when this Order is made.

(4)      Articles 6, 11 to 15, 17 to 23 and 26 have effect in relation to transfers of business taking place on or after 1st July 2008.

(5)      Articles 9 and 30 have effect in relation to transfers of business taking place on or after 1st January 2007 (but do not have any effect in relation to periods of account other than those which are current when this Order is made).

2.   Amendment of the Income and Corporation Taxes Act 1988

The Income and Corporation Taxes Act 1988(2) is amended as follows.

3.   Amendment of section 12

In section 12 (basis of, and periods of, assessment)(3), omit subsections (7A) and (7C).

4.   Amendment of section 431

In section 431(2) (interpretative provisions relating to insurance companies)(4), in paragraph (a) of the definition of “insurance business transfer scheme”, for “or 4” substitute “, 4 or 5(5)”.

5.   Amendment of section 432YA

In section 432YA (long-term business other than life assurance business – adjustment consequent on change in Insurance Prudential Sourcebook)(6), omit subsection (2A).

6.   Amendment of section 432E

In section 432E(2A) (apportionments: participating funds)(7)—

(a)      omit “444ABC,”,

(b)      after “444AEA,” insert “444AECA,”,

(c)      in paragraph (aa), omit “or 444ABC”, and

(d)      in paragraph (ab), after “444AEA” insert “or 444AECA”.

7.   Amendment of section 440B

In section 440B(4B) (modifications where tax charged under Case I of Schedule D)(8), after “apply” insert “in relation to assets which are referable to the life assurance business of the transferor”.

8.   Amendment of section 444A

(1)      Section 444A (transfers of business)(9) is amended as follows.

(2)      In subsections (2), (3) and (3A), for “assuming the transferor had continued to carry on the business transferred after the transfer” substitute “making the assumptions in subsection (3B) below”.

(3)      After subsection (3A) insert—

“(3B)   The assumptions referred to in subsections (2), (3) and (3A) above are—

(a)         that the transferor had continued to carry on the business transferred after the transfer, and

(b)         where there is no accounting period of the transferor ending with the transfer date, that there was such an accounting period.”

(4)      Omit subsection (3ZA).

9.   Insertion of sections 444AZA and 444AZB

After section 444A insert—

“444AZA    Transfers of life assurance business: Case VI losses of the transferor

(1)         This section applies where—

(a)         an insurance business transfer scheme has effect to transfer life assurance business from one person (“the transferor”) to another (“the transferee”),

(b)         assuming the transferor had continued to carry on the business transferred after the transfer, the amount of any profits would have been charged to tax in respect of that business under the I minus E basis,

(c)         the profits in respect of the business transferred for the first period of account of the transferee ending after the date on which the transfer takes effect are charged to tax in accordance with Case I of Schedule D by virtue of section 431G(3)(10), and

(d)         the conditions in paragraphs (a) and (b) of section 343(1) are satisfied in relation to the business transferred (construing references to an event as to a transfer).

(2)         Any loss which (assuming the transferor had continued to carry on the business transferred after the transfer) would have been available to be set off against profits chargeable under section 436A(11) (a “Case VI loss”) shall instead be treated as a loss of the transferee (a “Case I loss”) available to be set off against GRBP in relation to a period of account.

(3)         For the purposes of subsection (2) above “GRBP”, in relation to a period of account, is—

         where—

Pis the amount of such profits of the transferee’s life assurance business for the period of account as relate to the business transferred (that amount being determined in accordance with section 343(9) and (10), where applicable),

GRBTLis the mean of the opening and closing liabilities of the transferred gross roll-up business for the period of account, and

TLis the mean of the opening and closing liabilities of the transferred life assurance business for the period of account.

(4)         Where the transfer is of part only of the transferor’s long-term business, subsection (2) above shall apply only to such part of any Case VI loss to which it would otherwise apply as is appropriate.

(5)         Any question arising as to the operation of subsection (4) above shall be determined by the Special Commissioners who shall determine the question in the same manner as they determine appeals; but both the transferor and the transferee shall be entitled to appear and be heard or to make representations in writing.

444AZB       Transfers of life assurance business: Case I losses of the transferor

(1)         This section applies where—

(a)    an insurance business transfer scheme has effect to transfer life assurance business from one person (“the transferor”) to another (“the transferee”),

(b)    assuming the transferor had continued to carry on the business transferred after the transfer, the amount of any profits would have been charged to tax in accordance with Case I of Schedule D by virtue of section 431G(3),

(c)     the profits in respect of the business transferred for the first period of account of the transferee ending after the date on which the transfer takes effect are charged to tax under the I minus E basis, and

(d)    the conditions in paragraphs (a) and (b) of section 343(1) are satisfied in relation to the business transferred (construing references to an event as to a transfer).

(2)         The relevant fraction of any loss which (assuming the transferor had continued to carry on the business transferred after the transfer) would have been available to be set off against profits of that business (a “Case I loss”) shall instead be treated as a loss of the transferee (a “Case VI loss”) available to be set off against the amount of such profits chargeable under section 436A for a period of account as relate to the business transferred (that amount being determined in accordance with section 343(9) and (10), where applicable).

(3)         For the purposes of subsection (2) above “the relevant fraction”, in relation to a period of account, is—

where—

GRBTLis the mean of the opening and closing liabilities of the transferred gross roll-up business for the period of account, and

TLis the mean of the opening and closing liabilities of the transferred life assurance business for the period of account.

(4)         Where the transfer is of part only of the transferor’s long-term business, subsection (2) above shall apply only to such part of the amount of any Case I loss to which it would otherwise apply as is appropriate.

(5)         Any question arising as to the operation of subsection (4) above shall be determined by the Special Commissioners who shall determine the question in the same manner as they determine appeals; but both the transferor and the transferee shall be entitled to appear and be heard or to make representations in writing.”

10. Substitution of section 444AA

For section 444AA (transfers of business: deemed periodical return)(12) substitute—

“444AA    Transfers of business: deemed periodical returns

(1)         This section applies where the whole of the long-term business of a person (“the transferor”) is transferred from that person–

(a)   by one insurance business transfer scheme, or

(b)   by two or more insurance business transfer schemes which take effect on the same date.

(2)         Where (apart from this subsection) there would not be a periodical return of the transferor covering a period ending immediately before the transfer date, there is to be deemed for the purposes of corporation tax to be a periodical return of the transferor covering the period—

(a)         beginning immediately after the last period ending before the transfer date which is covered by a periodical return of the transferor, and

(b)         ending immediately before the transfer date.

(3)         The periodical return deemed to exist by subsection (2) above is to be deemed to contain—

(a)         such entries as would be included in an actual periodical return of the transferor covering the period mentioned in subsection (2) above, and

(b)         such entries as would be included in an actual periodical return of the transferor covering the period—

(i)        beginning immediately after the end of the period mentioned in subsection (2) above, and

(ii)      ending immediately before the transfer had effect,

and the period mentioned in subsection (2) above is to be deemed to be a period of account (but not an accounting period) of the transferor.

(4)         There is to be deemed for the purposes of corporation tax to be a periodical return of the transferor—

(a)         covering the transfer date, and

(b)         containing the appropriate entries.

(5)         In subsection (4) above “appropriate entries” means such entries as would be included in an actual periodical return covering the transfer date—

(a)         in line 32 of Form 40, and

(b)         in line 11 of Form 14, in both columns (treating references in that form to “current year” as references to the time immediately after the transfer date and to “previous year” as references to the time immediately before the transfer date).

(6)         A transfer date covered by a periodical return deemed to exist by subsection (4) above is to be deemed to be a period of account of the transferor only for the purpose of taking into account profits under section 444ABD(13).

(7)         Where—

(a)         a periodical return deemed to exist by subsection (4) above is preceded by an actual periodical return of the transferor covering the period immediately before the transfer date, and

(b)         profits are to be taken into account under section 444ABD in the period of account deemed to exist by subsection (6) above,

those profits are to be deemed for the purposes of corporation tax to be profits arising on the last day of the period of account covered by the actual periodical return.

(8)         Any actual periodical return of the transferor covering a period which includes the transfer date is to be ignored for the purposes of corporation tax.

(9)         In this section and sections 444AB to 444AECC(14) “the transfer date”, in relation to an insurance business transfer scheme, means the date on which it takes effect.”

11. Amendment of section 444AB

(1)      Section 444AB (transfer schemes transferring whole of business: transferor) is amended as follows.

(2)      For subsection (1) substitute—

“(1)   This section applies where—

(a)         an insurance business transfer scheme has effect to transfer long-term business of a person (“the transferor”) to another person (“the transferee”), and

(b)         condition A or condition B is met.”

(3)      In subsection (2)—

(a)         omit the words “from the transferor to the transferee”, and

(b)         in paragraph (b), for “, assets of a with-profits fund of the transferee” substitute “or a friendly society, assets of a fund of the transferee which would be a with-profits fund if the transferee were an insurance company”.

(4)      After subsection (5) insert—

“(5A)   In this section references to assets held by the transferor after the transfer do not include—

(a)         assets held on trust for the transferee, or

(b)         assets held to meet liabilities which have been wholly reinsured and which are intended to be transferred under an insurance business transfer scheme to the reinsurer.”

(5)      For subsection (6) substitute—

“(6)   In this section and sections 444ABA to 444AC “the relevant period of account” means—

(a)         the period of account of the transferor treated by section 444AA(2) as ending immediately before the transfer date, or

(b)         where there is no such period, the period of account of the transferor including the transfer date.”

(6)      The heading accordingly becomes “Transfer schemes: transferor”.

12. Amendment of section 444ABA

(1)      Section 444ABA (relevant non-transferred assets) is amended as follows.

(2)      In subsection (1)—

(a)         in the formula, for “RVA” substitute “BTO”, and

(b)         for the definition of RVA substitute—

“BTO is the lesser of ABTO and AL13, where—

(a)         ABTO is any amount brought into account in respect of the assets as a business transfer-out and shown (or treated as shown) in line 32 of Form 40 in the periodical return of the transferor for the period of account of the transferor including the transfer date, and

(b)         AL13 is any positive amount shown (or treated as shown) in line 13 of Form 14 in the periodical return for the last period of account of the transferor ending before the transfer date.”

(3)      Omit subsections (2) to (6).

(4)      In subsection (7), omit “, and section 444AB for the meaning of “the relevant period of account,”.

13. Amendment of section 444ABB

(1)      Section 444ABB (retained assets) is amended as follows.

(2)      In subsection (1), for the words from “is the lesser” to the end substitute—

“is—

FVA-ABDP-RL13-RRL

where—

FVA is the fair value of the assets on the transfer date,

ABDP is the amount of the profits to be taken into account as profits under section 444ABD,

RL13 is the amount by which AL13 exceeds VE, and

RRL is the value of any relevant retained liabilities immediately after the transfer date.

But the relevant amount is nil if it would otherwise be below nil.”

(3)      After subsection (1) insert—

“(1A)   For the purposes of subsection (1) above—

(a)     AL13 is any positive amount shown (or treated as shown) in line 13 of Form 14 in the periodical return for the last period of account of the transferor ending before the transfer date;

(b)    VE is the amount (if any) by which VL32 exceeds VTL where—

(i)           VL32 is the value of the assets shown (or treated as shown) in line 32 of Form 40 in the periodical return of the transferor covering (or treated as covering) the transfer date, and

(ii)         VTL means the amount of the liabilities transferred by the insurance business transfer scheme; and

(a)         relevant retained liabilities are any liabilities of the company’s long-term business which are owed by the company immediately after the transfer date and are shown (or treated as shown) in any of lines 17, 21 to 23 and 31 to 38 in Form 14 in a periodical return for the period of account ending (or treated as ending by section 444AA) immediately before the transfer date.”

14. Insertion of section 444ABBA

After section 444ABB (retained assets) insert—

“444ABBA    Transfers of business: election for transferee to pay tax of transferor

(1)      This section applies where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).

(2)      If the transferor and the transferee jointly elect, the transferee (and not the transferor) is chargeable to any amount of additional corporation tax to which the transferor would otherwise be chargeable by virtue of section 444AB(4) in relation to relevant non-transferred assets.

(3)      An election under subsection (2) above—

(a)         is to be irrevocable, and

(b)         is to be made by notice to an officer of Revenue and Customs no later than the end of the period of 90 days beginning with the day following the transfer date,

and a copy of the notice containing the election must accompany the tax return of the transferee for the first accounting period ending after the transfer.

Paragraphs 54 to 60 of Schedule 18 to the Finance Act 1998 (claims and elections for corporation tax purposes) do not apply to such an election.

(4)      Where an election under subsection (2) above has been made, the transferor must inform the transferee of—

(a)         the amount of any additional corporation tax to which the transferor considers the election to apply, and

(b)         the day on which that tax is due and payable,

no later than the end of the period of 8 months beginning with the day following the transfer date.

(5)      Tax chargeable on the transferee by virtue of an election under subsection (2) above—

(a)         is due in accordance with section 59D of the Management Act(15) on the day on which it would have been due if no election had been made, and

(b)         for the purposes of that section, is to be treated as tax payable by the transferor (and not as tax payable by the transferee).

(6)      See section 444AA for the meaning of “the transfer date” in this section.”

15. Omission of section 444ABC

Omit section 444ABC (transfer scheme transferring part of business: transferor).

16. Amendment of section 444ABD

(1)      Section 444ABD (transferor’s period of account including transfer) is amended as follows.

(2)      In subsection (1)—

(a)         in paragraph (a), for “value” substitute “amount”,

(b)         in paragraph (b), after “line 32” insert “of Form 40”, and

(c)         at the end insert “in accordance with subsections (1A) and (1C) below”.