Lloyd's appeal over Revenue profit tax
Special Commissioners hearing will decide on tax on syndicate reserves. Phillip Inman reports.
The Lloyd’s insurance market will attempt to overthrow a tax on theves. reserves of insurance syndicates at a special commissioners hearing next month, Accountancy Age has learned.
The appeal, if successful, could save Lloyd’s syndicates millions of pounds in tax on profits. The dispute between Lloyd’s, which believes the tax is wrongly inflated, and the Revenue, has been ongoing for several years.
A Lloyd’s spokesman said the dispute centred on whether amounts set aside to meet as yet unquantified claims should be discounted by the Revenue and excluded from syndicate profits.
At the moment, the Revenue includes a large slice of reserves in the profits of syndicates when it calculates the overall tax bill. This method increases the notional profit of each syndicate and consequently the amount of tax.
A senior figure at one syndicate said the profits were adjusted at the end of the year, but ‘it creates a terrible cashflow problem up to that point’.
A source close to the dispute said the Revenue was seeking to exploit differences in the laws governing Lloyd’s. ‘The Revenue is trying to impose discounting without fully taking into account the inherent volatility of the insurance market. We keep reserves because we don’t know what (liabilities) we might need to pay,’ he said.
One syndicate, which has not been named, has been put forward as a test case but a date has not been set for a Special Commissioner hearing.
Equitas, the re-insurance vehicle for all Lloyd’s losses before 1994, had its accounts qualified for the third year in succession by auditors Coopers & Lybrand, now part of PricewaterhouseCoopers. It showed a surplus of #718m and outstanding claims of #2.2bn.
Finance director Jane Barker said the accounts will continue to be qualified ‘for the foreseeable future’. She said Coopers had agreed that less detail was required than before, and so qualification was shorter this year.
She said Equitas was working to improve data quality for expected liabilities faced by it and the 13,000 Names.