The Insurance Contracts (Tax) (Change in Accounting Standards) Regulations 2022: Corporation Tax
Published 10 November 2022
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Who is likely to be affected
The transitional provisions apply to insurance companies that carry on long-term business and report under International Accounting Standards (IAS).
Certain general provisions apply to all companies that report under IAS and issue insurance contracts.
General description of the measure
IFRS 17 is a new international accounting standard that changes the way that insurance contracts are accounted for. This new standard replaces the interim accounting standard IFRS 4 and will become mandatory for UK companies reporting under IAS for accounting periods beginning on or after 1 January 2023.
These regulations mitigate the tax consequences of the accountancy change by spreading over 10 years certain amounts that would otherwise be subject to corporation tax immediately on the adoption of IFRS 17.
Policy objective
Without these regulations the tax consequences of adopting IFRS 17 could have significant cashflow and regulatory implications for some insurers. These regulations will support the long-term stability of the insurance sector in the UK and contribute to maintaining the UK as a leading financial services centre. They will also mitigate the Exchequer impacts of the accountancy change.
Background to the measure
At Autumn Budget 2021 the government introduced a power to spread the transitional impact of IFRS 17 for tax purposes.
A consultation ran between November 2021 and February 2022 to inform the design of the tax regulations to deal with the accounting change. A summary of responses was published on 20 July 2022.
Draft regulations were shared with members of the IFRS 17 working group for an informal consultation which ran from 24 August 2022 to 5 September 2022.
Draft regulations were published for consultation from 26 September 2022 to 7 October 2022. Revisions have been made to the draft regulations following the feedback received, in order to deliver the intended effect.
Detailed proposal
Operative date
The measure will apply to accounting periods beginning on or after 1 January 2023.
Current law
This instrument exercises the powers conferred by paragraph 1 of Schedule 5 to the Finance Act 2022. This is the first use of the power.
The legislation covering the taxation of life insurance companies is in Part 2, Finance Act 2012.
Proposed revisions
These regulations make provisions in relation to the adoption of the new accounting standard IFRS 17 in accounting periods beginning on or after 1 January 2023. Certain amounts that would otherwise be subject to corporation tax on the immediately adoption of IFRS 17 are instead brought into tax over 10 years.
Summary of impacts
Exchequer impact (£million)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| — | — | — | — | — | — |
The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at the next fiscal event.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
The proposed changes are expected to have no impact on individuals as they only affect businesses. There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on insurance businesses during the year of transition to IFRS 17 as they will need to calculate the amount to be spread for tax purposes. There will be a one-off cost of familiarisation to comply with these changes and undertake the calculation. Continuing costs include insurance companies needing to make an adjustment to their tax computation until the transition unwinds. Customer experience is expected to stay the same as this measure does not alter how businesses interact with HMRC.
This measure is not expected to impact on civil society organisations.
Operational impact (£million) (HMRC or other)
There are no financial consequences for HMRC as a result of this measure.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through regular communication with industry representative groups.
Further advice
If you have any questions about this change, contact the Financial Services Team in HMRC at [email protected]
Declaration
Andrew Griffith MP, Economic Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.