The corporation tax rules for life insurance companies were significantly revised and simplified from 2013, with fewer categories of business and tax data derived from the financial statements rather than the regulatory return. But complexities remain and tax work is best undertaken by life tax specialists to ensure correct application of the rules.
The so-called “I minus E” system of tax still applies to life insurance business which comprises investment products but protection policies written on or after 1 January 2013 are now taxed together with pension and other “gross roll up” business outside of “I minus E”. Correct classification of products for tax purposes is therefore vital to the accuracy of the tax return.
As there is no longer a statutory formulaic approach to the apportionment of accounting entries, insurers carrying on more than one category of long-term business for tax purposes need to consider the most suitable methods to apply in their particular business. They may have agreed their “commercial allocation” methodology with HMRC in 2013, but this needs to be monitored and adapted for any changes in the business to ensure that it remains appropriate. It may be prudent to obtain written confirmation from a senior actuary in the business to defend any HMRC challenge in this area.