GIM9130 - Mutual insurance: particular types: health mutuals: is the business mutual?

The essential features for a trade to be mutual trading are set out at GIM9010+. There is no relaxation of these criteria in the case of mutual health insurers. The tests should be applied in exactly the same way as for any other insurer. In particular, any surplus must go back to the contributors and to no one else.

The constitutions of a number of mutual health insurers meant that they could not be carrying on mutual business. Principally this was because of rules that precluded the contributors from controlling the insurer. Following discussions with the British Health Care Association (the body representing the majority of the Insurers involved), it was agreed that those mutual health insurers who had hitherto been treated as a mutual trader, but whose rules on examination were found to be inconsistent with such treatment, could either

• accept that they were not carrying on a mutual business (and so accept Case I Schedule D liability on all of their trading income, including from dealings with members), or
• make the necessary changes to their rules/constitution to comply with the requirements for mutual trading.

“Closed” years should not be re-opened and the changeover should take place from a convenient date; for example the beginning of the Insurer’s accounting period. See GIM9160 for further guidance on the tax issues arising on a change of status.

A health insurer which adopted the first alternative above, becoming subject to Case I, may at a future date (and for commercial reasons) wish to amend its constitution/rules to conform with the requirements for mutual trading. Where there are sound reasons for so doing the change may be accepted without further enquiry. Any case where the change appears to be designed to secure a tax advantage should be critically examined.