The new international accounting standard for insurance contracts, IFRS 17, will be effective from 1 January 2021 (or 2022 if the IASB’s proposed one-year deferral is passed), replacing interim standard IFRS 4. For many insurers it will introduce significant changes to how insurance contracts are recognised, measured and disclosed.
If IFRS 17 is applied in entity accounts, it will directly impact the amount of taxable profits and therefore corporation tax payable each year. There will also be a one-off profit or loss on adoption of the new standard, which will be taxable in full in the year of transition unless HMRC enact rules to spread this over a number of years. An informal consultation was announced in the 2018 Budget.
There is a risk that any loss on transition may become restricted under the reformed loss relief rules applying from April 2017, which could significantly increase the period of time over which it can be utilised. Taxable profit forecasts prepared for deferred tax recognition purposes will need to be updated for new profit profiles.
If IFRS 17 is applied for consolidated accounts but UK GAAP is applied for entity accounts, there will be only deferred tax impacts to consider on the GAAP adjustments between entity and consolidated accounts. However it is possible that, in time, UK GAAP standards will eventually align with IFRS 17.