Individual names and corporate members of Lloyd’s of London will of tax payments. learn next week whether a loophole that allows them to delay their tax payments will be closed.
A landmark case involving Lloyd’s and the Inland Revenue was heard in May at a special meeting of the tax tribunal, the City General Commissioners.
The verdict – which will affect millions of pounds in tax payments – will clarify a piece of 1987 legislation referring to the tax treatment given to the process of ‘reinsurance to close’.
Under Lloyd’s accounting rules a syndicate passes on its remaining liabilities at the end of the three-year accounting period even if the members do not change.
The legislation is designed to ensure no profit or loss is incurred when those liabilities are passed on to the successor syndicate whether or not its membership changes.
The Revenue has attempted to clarify the legislation in order to force members to discount their future liabilities by asking them to recognise the fact that many of their investments involve long-term risk.
One insurance analyst said it had taken the Revenue years to take action against some members of the insurance market who were getting away with deferring tax payments. ‘The Revenue is trying to increase its take of the taxable profit by taxing at the current value of money rather than when the profits are shared out,’ he said.
Profits are normally distributed some months after the close of an accounting year. Profits from the 1996 year of account were only distributed in June this year.
But David Clissitt, head of Lloyd’s taxation office, vigorously defended the rights of the members, saying that the 1997 legislation does not refer to discounting liabilities.
‘The legislation does not mention discounting them and if discounting was required for tax purposes surely somebody should tell us how to do it. We think we have a good case and it is highly likely that we would appeal if we lost,’ he said.
He added that Lloyd’s own rules ensure underwriters who determine reinsurance premiums are under strict guidance to maintain an equitable decision between the two sets of syndicates. The Revenue declined to comment.
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