Statutory Instrument 1997 No. 473

The Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1997

(The document as of February, 2008)

-- Back --

STATUTORY INSTRUMENTS

1997 No. 473

INCOME TAX

The Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1997

	Made	25th February 1997
	Laid before the House of Commons	26th February 1997
	Coming into force	20th February 1997

The Treasury, in exercise of the powers conferred on them by section 463 of the Income and Corporation Taxes Act 1988[1], hereby make the following Regulations:

Citation, commencement and effect
    1. - (1) These Regulations may be cited as the Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1997 and shall come into force on 20th March 1997.

    (2) Except as otherwise provided these Regulations shall have effect for accounting periods beginning on or after 1st January 1995.

Interpretation
    2.In these Regulations - 

    "directive society" means - 


(a) a friendly society to which section 37(2) of the Friendly Societies Act 1992[2] applies, or

(b) an incorporated friendly society which does not fall within paragraph (a);


    "incorporated friendly society" has the meaning given by section 116 of the Friendly Societies Act 1992;

    "linked business" means any business within Class III of Head A of Schedule 2 to the Friendly Societies Act 1992;

    "non-directive society" means a friendly society other than a directive society;

    "pension business" has the meaning given by section 431B of the Taxes Act[3];

    "prescribed transactions" means any of the following transactions, that is to say - 


(a) the transfer of the whole or part of the business of a directive society or a section 37(3) society to a non-directive society,

(b) the transfer of the whole or part of the business of a non-directive society to a directive society or a section 37(3) society,

(c) the amalgamation of a directive society or a section 37(3) society and a non-directive society,

(d) the transfer of the whole or part of the business of a non-directive society to a company which is not a friendly society, and

(e) the conversion of a non-directive society into a company which is not a friendly society;


    "section 37(3) society" means a non-directive society which - 


(a) falls within subsection (3) of section 37 of the Friendly Societies Act 1992, and

(b) is a friendly society to which subsection (8) of that section[4] applies;


    "specified transactions" means any of the following transactions, that is to say - 


(a) the transfer of the whole or part of the business of a friendly society to another friendly society,

(b) the amalgamation of two or more friendly societies,

(c) the transfer of the whole or part of the business of a friendly society to a company which is not a friendly society, and

(d) the conversion of a friendly society into a company which is not a friendly society;


    "the Taxes Act" means the Income and Corporation Taxes Act 1988;

    "the 1992 Act" means the Taxation of Chargeable Gains Act 1992[5].

Transfer of long term business of an insurance company to a friendly society
    3. - (1) The provisions of the Corporation Tax Acts which apply on the transfer of the whole or part of the long term business of an insurance company to another company shall have effect where the transferee is a friendly society.

    (2) This regulation shall have effect in relation to transfers taking place on or after 1st January 1995.

Modification of section 12(7A) of the Taxes Act
    4. - (1) Paragraph (2) prescribes a modification of section 12(7A) of the Taxes Act[6] so far as it applies to specified transactions taking place on or after 1st January 1995.

    (2) The words "in accordance with a scheme sanctioned by a court under Part I of Schedule 2C to the Insurance Companies Act 1982[7]" shall be omitted.

Modifications of section 76 of the Taxes Act
    5. - (1) Paragraphs (2) to (6) prescribe modifications of section 76 of the Taxes Act[8] so far as it applies to the life or endowment business carried on by friendly societies.

    (2) In subsection (1)(ca) after the words "referable to" there shall be inserted the word "taxable".

    (3) In subsection (1)(d) after the words "referable to" there shall be inserted the words "tax exempt basic life assurance and general annuity business".

    (4) In subsection (1)(e) after the words "referable to" there shall be inserted the word "taxable".

    (5) In subsection (1) at the end there shall be inserted - 

    " "; and in paragraph (d) above "tax exempt basic life assurance and general annuity business" means basic life assurance and general annuity business the profits arising from which fall to be exempted from tax by virtue of section 460(1)[9], and for the purposes of this definition it shall be assumed that the friendly society has made a claim for exemption from tax under that provision"."

    (6) In subsection (7), for paragraph (a) and the word "or" immediately following it there shall be substituted - 

" (a) a levy imposed by virtue of arrangements approved by the Friendly Societies Commission under section 141 of the 1986 Act, or".

Modifications of section 431 of the Taxes Act
    6. - (1) Paragraphs (2) to (7) prescribe modifications of section 431 of the Taxes Act[10] so far as it applies to the life or endowment business carried on by friendly societies.

    (2) In subsection (2) the following definitions shall be inserted in the appropriate places in alphabetical order - 

    "directive society" means - 


(a) a friendly society to which section 37(2) of the Friendly Societies Act 1992 applies, or

(b) an incorporated friendly society which does not fall within paragraph (a);


    "incorporated friendly society" has the meaning given by section 116 of the Friendly Societies Act 1992;

    "non-directive society" means a friendly society other than a directive society;

    "tax exempt basic life assurance and general annuity business" means basic life assurance and general annuity business the profits arising from which are exempt from tax by virtue of section 460(1);

    "taxable basic life assurance and general annuity business" means basic life assurance and general annuity business other than tax exempt basic life assurance and general annuity business;

    "valuation report" - 


(a) in the case of a directive society, means the abstract of the actuary's report referred to in section 46(3) of the Friendly Societies Act 1992;

(b) in the case of a non-directive society, means the abstract of the actuary's report referred to in section 47(2) of the Friendly Societies Act 1992;

    (3) In subsection (2) for the definition of "liabilities" there shall be substituted - 

    " "liabilities" - 

(a) in relation to a directive society, means the liabilities of the society estimated as for the purposes of its valuation report (excluding any that have fallen due or been reinsured and any not arising under or in connection with policies or contracts effected as part of the society's insurance business); and

(b) in relation to a non-directive society - 


(i) means, in the case of a society which has sent a valuation report as at the end of an accounting period to the Friendly Societies Commission, the liabilities of the society estimated as for the purposes of its valuation report (excluding any that have fallen due or been reinsured and any not arising under or in connection with policies or contracts effected as part of the society's insurance business), and

(ii) means, in the case of a society which has not sent a valuation report as at the end of an accounting period to the Friendly Societies Commission but has caused the actuary to the society to prepare a report on the same basis as the actuary's report referred to in section 47(2) of the Friendly Societies Act 1992, the liabilities of the society estimated as for the purposes of that report (excluding any that have fallen due or been reinsured and any not arising under or in connection with policies or contracts effected as part of the society's insurance business), and

(iii) means, in any other case, the liabilities of the society ascertained in accordance with subsections (7) to (10) below;".

    (4) In subsection (2) for the definition of "long term business" there shall be substituted - 

    " "long term business" shall be construed in accordance with section 117 of the Friendly Societies Act 1992[11];".

    (5) In subsection (2) for the definition of "periodical return" there shall be substituted - 

    " "periodical return" - 


(a) in the case of a directive society, means - 


(i) the abstract of the actuary's report referred to in section 46(3) of the Friendly Societies Act 1992, and

(ii) all forms completed in accordance with the Friendly Societies (Insurance Business) Regulations 1994[12]; and



(b) in the case of a non-directive society, means its valuation report;".

    (6) In subsection (2) for the definition of "value" there shall be substituted - 

    " "value" - 


(a) in relation to the assets of a directive society, means the value of the assets as taken into account for the purposes of the society's periodical return; and

(b) in relation to the assets of a non-directive society - 


(i) means, in the case of a society which has sent a valuation report as at the end of an accounting period to the Friendly Societies Commission, the value of the assets as taken into account for the purposes of its valuation report,

(ii) means, in the case of a society which has not sent a valuation report as at the end of an accounting period to the Friendly Societies Commission but has caused the actuary to the society to prepare a report on the same basis as the actuary's report referred to in section 47(2) of the Friendly Societies Act 1992, the value of the assets as taken into account for the purposes of that report, and



(iii) means, in any other case, the value of the assets ascertained in accordance with subsections (11) to (14) below;".

    (7) At the end of the section the following subsections shall be inserted - 

    " (7) For the purposes of paragraph (b)(iii) of the definition of "liabilities" in subsection (2) above the closing liabilities of a society for an accounting period ("the relevant accounting period") shall be ascertained in accordance with the formula - 



L1 +

(

(L2 - L1) ×

T1 T2

)

where - 


L1 is the liabilities as at the end of the last accounting period ("the preceding accounting period") which precedes the relevant accounting period and for which a relevant report is drawn up;

L2 is the liabilities as at the end of the first accounting period ("the subsequent accounting period") which follows the relevant accounting period and for which a relevant report is drawn up;

T1 is the number of days from the end of the preceding accounting period to the end of the relevant accounting period;

T2 is the number of days from the end of the preceding accounting period to the end of the subsequent accounting period;



and where the formula is used to ascertain the closing liabilities for an accounting period, the liabilities so ascertained shall be the opening liabilities for the next accounting period.

    (8) Where, for those purposes, it is necessary to ascertain the liabilities in any case where a relevant report has not been drawn up at the end of the relevant accounting period, the liabilities shall be estimated on a basis compatible with that used in the previous relevant report, having regard to any changes in the nature or extent of the society's business since that report.

    (9) In any case where subsection (8) above has applied, subsection (7) above shall apply as soon as the society is able to ascertain the closing liabilities in accordance with the formula set out in that subsection; and all such adjustments to the liability to tax of the society shall be made, whether by assessment or otherwise, as may be required to give effect to subsection (7) above.

    (10) In subsections (7) and (8) above a "relevant report" means a valuation report or the report specified in paragraph (b)(ii) of the definition of "liabilities" in subsection (2) above.

    (11) For the purposes of paragraph (b)(iii) of the definition of "value" in subsection (2) above the value of the assets of a society as at the end of an accounting period ("the relevant accounting period") shall be ascertained in accordance with the formula - 



V1 +

(

(V2 - V1) ×

T1 T2

)

where - 


V1 is the value of the assets at the end of the last accounting period ("the preceding accounting period") which precedes the relevant accounting period and for which a relevant report is drawn up;

V2 is the value of the assets as at the end of the first accounting period ("the subsequent accounting period") which follows the relevant accounting period and for which a relevant report is drawn up;

T1 is the number of days from the end of the preceding accounting period to the end of the relevant accounting period;

T2 is the number of days from the end of the preceding accounting period to the end of the subsequent accounting period;



and where the formula is used to ascertain the value of the assets as at the end of an accounting period, the value so ascertained shall be the value of the assets at the beginning of the next accounting period.

    (12) Where, for those purposes, it is necessary to ascertain the value of the assets in any case where a relevant report has not been drawn up at the end of the relevant accounting period, the value of the assets shall be estimated on a basis compatible with that used in the previous relevant report, having regard to any changes in the nature or extent of the society's business since that report.

    (13) In any case where subsection (12) above has applied, subsection (11) above shall apply as soon as the society is able to ascertain the value of the assets in accordance with the formula set out in that subsection; and all such adjustments to the liability to tax of the society shall be made, whether by assessment or otherwise, as may be required to give effect to subsection (11) above.

    (14) In subsections (11) and (12) above a "relevant report" means a valuation report or the report specified in paragraph (b)(ii) of the definition of "value" in subsection (2) above."

---

Notes:

[1] 1988 c.1; section 463 was amended by section 50 of the Finance Act 1990 (c.29), paragraph 10 of Schedule 9 to the Finance (No. 2) Act 1992 (c.48) and, in relation to accounting periods ending on or after 1st September 1996, by section 171(5) of the Finance Act 1996 (c.8).back

[2] 1992 c.40.back

[3] Section 431B was inserted by paragraph 2 of Schedule 8 to the Finance Act 1995 (c.4).back

[4] Section 37(8) was substituted by regulation 3 of S.I. 1993/2519.back

[5] 1992 c.12.back

[6] Section 12(7A) was inserted by paragraph 3 of Schedule 9 to the Finance Act 1990 and amended by paragraph 1(1) and (2)(a) of Schedule 9 to the Finance Act 1995.back

[7] 1982 c.50; Schedule 2C was inserted by Schedule 3 to S.I. 1994/1696.back

[8] Section 76 was amended by section 87(2) of the Finance Act 1989 (c.26), section 44(3) of, and paragraph 1 of Schedule 7 to, the Finance Act 1990, section 47 of, and paragraph 1 of Schedule 7 and Part V of Schedule 19 to, the Finance Act 1991 (c.31), paragraph 7 of Schedule 8 to the Finance Act 1995, and, in relation to accounting periods beginning on or after 1st January 1996, by section 164(1) and (2) of, and paragraph 1 of Schedule 31 to the Finance Act 1996, and (prospectively) by paragraph 1 of Schedule 33 to the Finance Act 1996.back

[9] Section 460(1) was amended by paragraph 5(2) of Schedule 9 to the Finance (No. 2) Act 1992.back

[10] Section 431 was amended by paragraph 1(2) of Schedule 6 to the Finance Act 1990, section 52(1) of, and paragraphs 1 and 11(1) of Schedule 8 and Part VIII(5) of Schedule 29 to, the Finance Act 1995, and, in relation to accounting periods beginning on or after 1st January 1996, by Part V(26) of Schedule 41 to the Finance Act 1996.back

[11] Section 117 was amended by regulation 7 of S.I. 1993/2519.back

[12] S.I. 1994/1981.back

---