GIM6130 - Technical provisions: accounting periods beginning before 1 January 2000: claims handling expenses

Any provision for expenses for settling claims outstanding will be shown at lines 14 and 18 of form 22 and line 39 of form 24 in the regulatory return, but may not be separately disclosed in the accounts.

For many years it was the practice for the Revenue to resist the inclusion in technical reserves of any future expenses to be incurred in settling claims beyond the direct marginal costs associated with handling a particular claim, such as legal expenses and the cost of external professional advice.

This position changed following the publication of the May 1990 SORP, after which the Revenue accepted tax deductions for provisions for claims handling expenses, calculated in accordance with generally accepted accounting practice, to cover future anticipated costs of negotiating and settling incurred claims, whether reported or not.

The 2003 SORP deals with provisions for claims handling expenses at paragraphs 99 to 101. In particular cases the Revenue may wish to check the figure included is sufficiently accurate to satisfy the second of the two tests mentioned by Lord Radcliffe in Owen v Southern Railway of Peru 36TC602 at page 644.