GIM12240 - Double taxation relief: foreign tax on investment income: accounting periods beginning on or after 1 April 2000: section 804C ICTA 1988: meaning of “total relevant expenses” and “total income”

Total relevant expenses

Total relevant expenses in general insurance means the sum of certain items shown in the P&L Format of Schedule 9A Companies Act 1985:

• the claims incurred, net of reinsurance (item I.4)
• the changes in other technical provisions, net of reinsurance (item I.5)
• the change in the equalisation provision (item I.9)
• investment management expenses (items I.8a(a) and III.5(a) – see GIM12210)

unless the sum is a negative amount, in which case the total relevant expenses will be nil, and no expenses will fall to be deducted from the relevant income - section 804E(5). The amounts taken into account in respect of each item above are the amounts taken into account for tax, if they differ from the accounts amounts - section 804E(6).

Total income

Total income in general insurance (section 804E(2) is the excess of the sum of the incomings listed in section 804E(3) over the sum of the outgoings in section 804E(4).

The incomings in section 803E(3) are

• earned premiums, net of reinsurance (item I.1)
• investment income and gains (items I.2a, III.3 and III.3a*)
• other technical income, net of reinsurance (item I.3);
• any amount treated as a receipt under FA00/S107 (2) (discounting etc.)

The outgoings in section 803E(4) relevant to general insurance are

• acquisition costs (item I.7(a))
• the change in deferred acquisition costs (item I.7(b))
• losses on investments (item I.8(c) and III.5(c)*)

*Such items should only be taken into account so far as they are referable to general insurance business. Where there is a transfer of investment return from non-technical account to technical account and the allocation is of actual return, the amount concerned should be taken as the amount of the item in the non-technical account referable to general insurance business, unless it is clear that the allocation is inadequate.

The amounts taken into account in respect of each item above are the amounts taken into account for tax, if they differ from the accounts amounts (section 804E(6)). In the unlikely event of the outgoings referable to general insurance exceeding the incomings so referable, “total income” will be nil, and no expenses will fall to be deducted from the relevant income.