Lloyd’s is warning names in the insurance market that they could face a £350m tax bill despite winning a case against the Inland Revenue over whether they should discount future tax liabilities.
In a market bulletin names were warned the Revenue could still appeal last week’s ruling by the City General Commissioners.
The tax tribunal said the Revenue was wrong to demand that tax paid by syndicates on reinsuring liabilities at the end of an accounting period should be discounted. Lloyd’s said this would give rise to totally uncommercial figures.
Lloyd’s said that members who had already paid tax to the Revenue on the basis of its view would be entitled to a rebate.
The ‘reinsurance to close’ process allows syndicates to close their accounts, usually at the end of 36 months, and distribute profits to members. But the process effectively allows the market to take advantage of a deferred tax period.
Although legislation introduced in 1997 to deal specifically with the tax of this reinsurance did not mention discounting, the Revenue argued this was necessary in order to comply with the law.
It taxed all syndicates on this basis for the 1994 accounting period, giving rise to extra bills across the market of almost £150m.
The total tax at stake for 1994 and later years is estimated at £350m.
Although Lloyd’s has won the appeal, one analyst from a leading investment bank said he expected that the Revenue would win any appeal in the High Court.
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