GIM4030 - Taxation of general insurance: general rules

A company writing general insurance business, and trading in (rather than with) the UK, is subject to the normal rules governing the taxation of companies in the UK. An insurance company is therefore chargeable to tax in respect of its trade under the rules of Case I of Schedule D on its “annual profits or gains arising or accruing” by virtue of ICTA88/S18. There is little statutory guidance on how annual profits are to be measured beyond ICTA88/S70 which merely provides that “for the purposes of corporation tax...income shall be computed under [Case I] of Schedule D on the full amount of the profits or gains”. Where reference is made in GIM “trade profits” it should be taken as referring to profits taxable under Case I of Schedule D.

The lack of statutory guidance on computing the annual profits or gains of a trade has led to a wealth of case law on the subject and as general insurers are taxed as ordinary traders many non-insurance cases are in point.

A line of cases that is particularly pertinent is that relating to the relationship between taxable and commercial profits, culminating in Threlfall v Jones; Gallagher v Jones (66TC77), Johnston v Britannia Airways (67TC99) and Herbert Smith v Honour (72TC130). These establish the principle that the full annual profits or gains are to be determined by the ordinary principles of commercial accounting, provided that there is no express statutory rule which requires otherwise.

A full review of this topic can be found in the Business Income Manual at BIM46510 onwards.