LLM4070 | Corporate members: taxation of syndicate profits: the declaration basis: non-calendar year accounting periods

Almost all corporate members make up their accounts for calendar years. However, if a corporate member makes up its accounts to any other date, the profits of more than one underwriting year will need to be apportioned to arrive at the taxable profits. The profits of each underwriting year are apportioned to the accounting period on a time basis under TMA70/S72. The rules apply to the results of both closing and run-off syndicates.

The following examples involve corporate members making up their accounts to dates in 2006, which include parts of the calendar years 2005 and 2006. We need to decide which syndicate profits are relevant to these accounting periods, and then how they are apportioned to accounting periods.

In normal circumstances the profits which are declared in 2005 are those of the 2002 syndicates. These close on 31 December 2004 and declare profits in about April 2005. Similarly, the profits which are declared in 2006 are those of the 2003 syndicates. These close on 31 December 2005 and declare profits in about April 2006.

The profits or losses to be assigned to the accounting periods falling wholly within 2005 and 2006 will therefore be those of the 2002 and 2003 syndicate accounts respectively. Having decided which syndicate profits are involved, the next step is to apportion them to accounting periods.

Accounts for year to 31 March 2006

A corporate member makes up accounts for the year ended 31 March 2006. This period comprises 9 months of the year ended 31 December 2005 and 3 months of the year ended 31 December 2006.

The profits (or losses) for tax purposes for the accounting period ended 31 March 2006 will include 9/12 of the profits declared in the year 2005 and 3/12 of the profits declared in the year 2006. So the tax result for the accounting period for the year ended 31 March 2006 will comprise 9/12 of the results of the syndicates the company was a member of in 2002 and 3/12 of the results of the syndicates the company was a member of in 2003.

Accounts for six months to 30 June 2006

A corporate member makes up accounts for the 6 months to 30 June 2006. Its profits will include 6/12 of the profits declared in the year ended 31 December 2006. The tax result will therefore include 6/12 of the results of the 2003 syndicates of which it was a member.

Accounts for three months to 31 December 2006

A corporate member makes up its final accounts for the 3 months to 31 December 2006. Its profits will include 3/12 of the profits declared in the year ended 31 December 2006. The tax result will therefore include 3/12 of the results of the 2003 syndicates of which it was a member.