GIM7380 - Equalisation reserves: recalculation of reserves for tax purposes

Companies may be required to recalculate their equalisation reserve for tax purposes in a number of circumstances:

• where the regulatory returns are drawn up wholly or partially using a non-annual basis of accounting, but tax returns are based on annual accident year based accounts ( GIM7140)
• where credit insurance business equalisation reserves have been accumulated prior to accounting periods ending on or after 31.12.96 ( GIM7260)
• where the insurer operates partly on a mutual, and partly on a non-mutual basis ( GIM7360)
• where the reserve has been challenged on anti-avoidance lines ( GIM7350).

Where it is necessary to construct a shadow reserve regulation 3 of the tax regulations provides that a separate reserve will be maintained until such time as the regulatory reserve and the shadow tax reserve naturally coincide.

There is an example of a shadow reserve calculation at GIM7240.