This article summarises a few key areas (some of which apply to the wider insurance market) and what you should be thinking about over the next few months.
In a world of increased competition and scrutiny, Lloyd’s are keen to demonstrate that they are producing high quality data and reporting for tax and regulatory purposes. The Framework process involves Board sign-off from each managing agent in the Market and the first sign-off deadline is 30 June 2013 for service companies.
Groups need to be familiarising themselves with Lloyd’s risk model and how it applies to their business; identifying and documenting the key controls and gathering evidence that these controls are operating effectively. Groups may be able to make use of work completed for their SAO sign-off which is based on similar principles.
HMRC continue to update their SAO guidance:
- remember that even if the group is below the £2billion balance sheet threshold the £200m turnover threshold may be relevant now that premium income is included;
- updated guidance is due to be published later in the spring / summer, to clarify that HMRC expect either ‘clean’ or qualified SAO certificates, not the hybrid option often seen of an unqualified certificate with a list of possible or actual taxation issues.
Continued vigilance is required, the SAO sign off is that appropriate tax accounting arrangements existed, and were monitored, throughout the year. Any error discovered in any of the taxes covered may call into question the validity of a ‘clean’ certificate. Groups should continue to monitor their controls and keep up-to-date with changes to the SAO guidance to avoid incurring personal penalties and reputational damage associated with falling foul of the rules.
Legislation in Finance Act 2012 aligned the timing of deductions for member level reinsurance premiums payable with the timing of the taxation of member level reinsurance recoveries; both now on a declarations basis. Previously, the legislation was silent on the timing of deductions for premiums payable and a few groups took the deduction on an accounts basis.
The new rule applies to member level reinsurance taken out on or after 6 December 2011, so groups should have already modelled the impact. The reducing UK corporation tax rates may prompt consideration of adjustments to the previously submitted 2011 returns.
We are seeing an increase in the number of HMRC enquiries challenging the extent of connected party reinsurance and its pricing. As the tax transparency debate rubbles on, insurance groups need to be able to demonstrate from both a tax technical and reputational perspective that an appropriate share of their underwriting profit is being taxed in the UK.
Lloyd’s members and indeed the wider insurance industry have not to date faced the hostility directed at other financial organisations such as banks. However, they are impacted by the general increasing scrutiny of corporate taxpayers. Therefore, tax and finance departments need to keep on top of the latest developments as tax moves up the agenda – both in the press and boardrooms.