IPTM7245 - Audit of insurers: breaches of the reporting rules

Breaches of the rules in the chargeable event reporting regime include

• issue of incorrect chargeable event certificates
• chargeable event certificates not issued where required
• changes in the qualifying status of a policy or contract not recognised or recorded.

Sample testing

Where the auditors can reasonably conclude that errors exist throughout the rest of the portfolio, or a particular part of it, they will request further statistical review work to be carried out by the insurer so the full extent of the failure can be established.

Recovery and penalties

Under TMA70/S98, an insurer who fails to provide chargeable event gain details to HMRC or the policyholder in the form of a chargeable event certificate may be charged a penalty. There is a maximum initial penalty of £300 for a failure to deliver a certificate and a maximum continuing penalty of £60 per day for each day that the failure continues after the initial penalty has been imposed. There is a maximum penalty of £3,000 where the insurer has issued an incorrect certificate through negligence on its part. Although the above penalties may be sought by HMRC as a result of errors found, the auditors may instead agree with the insurer to quantify a recovery based on an approximation of the policyholder tax liability and interest on the unreported assessable gain together with an additional amount where continuing compliance failures are identified. The method used to quantify the recovery will be discussed in detail with the insurer at the close of the inspection or earlier if required.

Audit protection

Statement of Practice SP8/91 explains the circumstances in which HMRC will recover tax where a claim or assessment has previously been settled by agreement. Broadly, an agreement will not be rescinded unless the information on which it was based was misleading. In line with this practice, CAR Audit do not seek recoveries on events occurring before the end of the period covered by the last audit, whether or not that earlier audit resulted in any recovery unless

• the settlement was based on misleading or incorrect information provided by the insurer
• the settlement was based on computational errors which the insurer could not reasonably have believed were correct or intended, or
• errors arose that were not readily susceptible to audit inspection checks.