LLOYD S. Telephone X. Faceimile071-S2623S9, Telex S CLLOYD. One Lime Street, London E(23M 7HA

Transcription

1 LLOYD S LLoyrYs OF iohidon Telephone X. Faceimile071-S2623S9, Telex S CLLOYD One Lime Street, London E(23M 7HA A P Barber Esq Secretary to the Council Gallery Building CSLOO02 From: Manager, Taxation Department Extension: Date: 9 October 1991 Reference: TD/DRC/j/6142S/60 Subjecc: Tax repayments and postponement applications Inla nd Revenue Droeramme and Procedures, 1. Jn t ro duction, The Inland Revenue has been reviewing options for dealing with various tax repayments due to Lloyd s Names. In assessing each option the Inland Revenue has considered the extent to which additional resources could be utilised or special procedures adopted to effectively speed-up the flow of repayments. The following paragraphs set out the Inland Revenue s proposed timetable for dealing with this work over the forthcoming months. Wherever possible these paragraphs follow the sequence in which the work will be dealt with. In addition, the appendix to this bulletin gives a brief outline of the various forms of loss relief which might be available to individual Names. It is included only as an aide memoire as loss relief is a very complex subject upon which Names may wish to take professional advice. 2. cad ital Rains tax. 2.1 Issue of forms LL20 OZ and redavments. Leeds (Underwriters Unit) has ~een processing capital gains for the 1985 and 1986 Accounts together. The issue of forms LL200 for both of these years is virtually complete and repayments will have started flowing from both the General Claims Districts and Leeds (Underwriters Unit).

2 -2- It should be noted in connection with this that there are two possible claims:- losses arising in one syndicate can be relieved against gains in another syndicate and repayments arising from this relief are dealt with at Leeds (Underwriters Unit). Formal claims to repayment will not be required. However, Names advisors should ensure that where the repayment is to be mandated to a third party, Leeds (Underwriters Unit) has been advised. net syndicate capital losses can be relieved against other personal gains for the same year of assessment. Repayments arising from this relief are dealt with by the General Claims Districts. Some of the repayments that Leeds (Underwriters Unit) will be making are very small and they have proposed that any repayment less than E1O will be carried forward and added to the next repayment due. The Inland Revenue has pointed out that the losses shown on Form LL2~13(z) should be marginally increased for most Names to take account of the deduction for foreign tax available under Section 11 CGTA However the Inland Revenue believes that in most cases the additional amount of the loss would be less than f10. Their normal practice would be to add the foreign tax deduction to the losses shown on the LL200(Z) so that the General Claims Districts could make one repayment. In view of the large number of Names involved, to follow this routine would delay the issue of repayments. The Inland Revenue therefore propose to issue forms LL200(z) without any reference to any additional relief which might be due for foreign tax enabling repayments to be made at the earliest possible opportunity. As the amount of foreign tax relief due will not be material in the majority of cases, Leeds (Underwriters Unit) will not be sending separate notifications of these amounts to the General Claims Districts. Where a Name wishes to claim relief for foreign tax paid he or she should lodge a claim with the General Claims District notwithstanding that a claim might already have been lodged with Leeds (Underwriters Unit). It is hoped that this process will avoid both major delays in the capital gains tax repayments made by Leeds (Underwriters Unit) and any consequential delays in other areas of the repayment programme. Claims of E20 or less, for each year involved, will be accepted without referring back to Leeds (Underwriters Unit). It is anticipated that forms LL200 for the 1987 and 1988 Accounts will be issued in Spring and Summer 1992 respectively. 2.2 Time limit for elections ection under 4(2 S auita > C 1 ins Ga Tax Act 1979 My Market Bulletin dated 7 February 1991 advised of an extension to the time limit for Names to make an election under Section 4 (2) for the capital losses of one spouse not to be set against the gains of the ocher. Under that extension, the time limit expired at the end of the month following the month in which the relevant form LL200 with agreed figures was issued. Large numbers of LL200 s for 1985/86 and 1986/87 have been issued simultaneously, and in view of this the time limit has been further extended. The Revenue will give effect to elections for both 1985/86 and 1986/87 if they are made noc later than 31 December 1991.

3 J?ostDonement au Dlications. The legislation in connection with capital gains tax postponement applications is contained in Section 55 of the Taxes Management Act Names may wish to postpone the tax on non-lloyd s capital gains charged by assessments which are under appeal on the basis that syndicate capital losses will be available. These gains are likely to have been computed earlier than the Lloyd s figures. Any such postponement application must be submitted to the General Claims Districts and should be supported by a statement of the grounds for the belief that there is an overcharge to tax. 3. Income Tax, 3.1 Repayments for 1987/88. Large numbers of repayment claims in respect of 1987/88 are now being received and dealt with by Leeds (Underwriters Unit). These claims will continue to be processed and in addition a substantial number of revised forms LL9 will be issued in October The Inland Revenue considers that revising the 1987/88 assessments places them in a better position for dealing with 1988/89 work. 3.2 Postponement a~ ulications for 1987/$8 - Lloyd S Swee~-u~ Assessments Leeds (Underwriters Unit) has received many postponement applications in respect of the 1987/88 Lloyd s sweep-up assessments on the grounds that there are surplus losses available from the 1988 Account after relief has been given for 1988/89. Leeds (Underwriters Unit) has indicated that it will accept these postponement applications without challenge. Most postponement applications will by now have been lodged, but some Names might wish to consider further postponement applications. However, Names and their advisors should remember that where the postponed amount proves to be excessive and tax is ultimately payable, an interest charge under Section 86, Taxes Management Act 1970, may arise. 3.3 postd onement of tax on non-llovd s income The legislation covering postponements of income tax is contained in Section 55 of the Taxes Management Act 1970 and includes the requirement for the taxpayer to state the grounds for the belief that there is an overcharge to tax. There will be situations where postponement applications in respect of tax on non-lloyd s income need to be considered. In making such postponement applications the Name has to satisfy the Inspector, or failing him, the Commissioners that: the Name has sustained an overall loss on his or her Lloyd s participation; there will be a loss even after taking account of any Special Reserve Fund withdrawal and any stop loss recovery; the loss may be set against the income charged by the assessment; the loss can be quantified with sufficient certainty to support the Name s postponement application.

4 -4- The evidence to support a postponement application will change from time to time. The Inland Revenue has indicated that the two major documents to support a postponement of tax charged for the same year of assessment are the forms LL9 and the consolidated personal statement. Where exceptionally a Name has an assessment on non Lloyd s income still under appeal at the time that the LL9 is issued (for example, taking the 1988 Account, the LL9 will be issued in 1992) then that Name may use the LL9 to support a revised postponement application. The consolidated personal statement is available earlier than the LL9 but it does not show figures which have been adjusted for taxation purposes. In addition it does not take into account Special Reserve Fund withdrawals or stop loss recoveries. However, the Inland Revenue has indicated that where a postponement application is supported by a Name s consolidated personal statement showing an overall loss for the same year of assessment, it will accept the postponement application to the extent of 75% of the overall loss shown by the statement. If it subseque~~ly co!nes LO the Inspector s notice that the anticipated loss is reduced for any reason whilst the assessment is still under appeal, then he may seek to modify the amount postponed. In connection with postponement applications generally, statements or articles pointing to losses in the Lloyd s market as a whole will not be accepted by the Inland Revenue as constituting satisfactory evidence in support of an individual postponement application. 3.4 Citv 35 : 1988 Account Case I Determinations For Leeds (Underwriters Unit) to produce forms LL9 for issue from January 1992, City 35 will need to make prompt determinations of each syndicate s profit or loss. In making the determinations, City 35 will use agreed figures where available and will defer a determination where there is a reasonable expectation of agreement being reached in time. Nevertheless, City 35 anticipates issuing more estimated determinations than in previous years, In part, this results from the late or incomplete submission of some syndicate accounts. Estimated determinations will therefore be made in: a) cases where there has been delay in the submission to City 35 - in whole or in part - and b) cases where on an initial scrutiny of the submission, the Inspector is not immediately satisfied with the Return. Managing agents should note that the power to make a determination in an estimated figure has to be exercised to the best of Inspector s knowledge and belief and City 35 will discharge that obligation accordingly. The Notice of determination of the Case I Profit/Loss, form LL251(1), carries a requirement for the apportionment schedule to be submitted to Leeds (Underwriters Unit) within 30 days. A prompt response by managing agents, well within the statutory time limit, would clearly assist Leeds (Underwriters Unit) in meeting the January 1992 target.

5 Provisional repayments for 1988/ 89, The Inland Revenue anticipates that forms LL9 for the 1988 Account will start to flow in January Provisional repayments of income tax not in dispute will be made on the basis of the LL9 s from about 1 February onwards. Such repayments will be made even where some of the results on the form LL9 are estimates. It is expected that these repayments will be dealt with between February and May SD ecial Reserve Fund The Inland Revenue has confirmed that the deadline for submitting Special Reserve Fund transfers for the 1988 Account will continue to be the end of the month following the month in which form LL9 is issued. To assist this process, Leeds (Underwriters Unit) has indicated that ic will endeavour to issue all forms LL9 where the full results are available no later than the 20th of each month. Leeds (Underwriters Unit) has requested that the following procedures be adopted when submitting Special Reserve Fund transfers:- all computations should be sent under separate cover from other correspondence or appeals as Special Reserve Fund computations are dealt with by a separate section of Leeds (Underwriters Unit). if a transfer is made in line with the original computation, no confirmation letter is required. no reminders or phone calls are appropriate as they can cause delay in the working of computations /89 sweed ud assessments. Leeds (Underwriters Unit) anticipates that there will be considerable improvement in the assessing programme for the 1988 Account. This is due in great pare to the proposed earlier issue of forms LL9 which will enable Leeds (Underwriters Unit) to plan the timing of the issue of assessments so as to give adequate time for appeals and postponement applications to be dealt with by them before the due and payable date. In addition, it is anticipated that the 1988 Account assessments will be more accurate, although the forms LL9 will include estimated results and appeals will still be appropriate. Leeds (Underwriters Unit) has requested that the following points be observed in the appeals procedure:- appeals should be sent under separate cover from other correspondence; use of form 64-7 is preferred as it is clearly identifiable as appropriate to the appeals section; the appeal form or letter should not be copied to the Collector of Taxes as this creates additional work for both the Collector and Leeds (Underwriters Unit).

6 -6-4. General. The Inland Revenue has considered and is implementing various measures to ensure that its system is best placed to achieve the timetable outlined above. In addition, they will be asking the staff at Leeds (Underwriters Unit) to work many thousands of hours of voluntary overtime. Whilst recognizing that Names will be disappointed that repayments in respect of 1988/89 cannot be made in 1991, the Inland Revenue considers that its proposed timetable will ensure that repayments for all of the years involved will be generated as soon as possible without causing undue delays for future years of account where similar considerations might be involved. However, if the timetable is to be achieved, the co-operation of the Lloyd s Market is required. The syndicate accounts, apportionment schedules and Members Agents returns will all have to be submitted on time if forms LL9 are to be available as projected. Delays in providing the syndicate apportionment schedules in a few big syndicates can delay the LL9 issue badly. Furthermore, the Member s Agents return forms provides iafornntis!? which ~s needed for the forms LL9. The Inland Revenue has indicated that Leeds (Underwriters Unit) will not be able to expedite repayments in individual cases and therefore it should be recognised that telephone enquiries or letters chasing up the repayments take up time but do not advance the work. Names, their agents and accountants are therefore asked not to seek individual progress reports as this will only hold up the work for everyone. The Inland Revenue will provide Lloyd s with progress reports and these will be included in future Market bulletins. This bulletin is being sent to all Underwriting Agents and Recognised Auditors, Co ordinating Agents should ensure that Names and/or their tax advisors receive a copy. If you have any queries, please telephone Ms Helen French on extension 6852, Mrs Maureen McLeod on extension 6860 or myself on extension D R Culliford Manager Taxation Department

7 ADDendix 1, 1. Summary of loss relief provisions. Detailed provisions in connection with loss relief are contained in the Income and Corporation Taxes Act 1988 and unless stated otherwise, the section references below are to that Act. The brief summary at paragraphs 2-7 below is intended to illustrate the various forms of loss relief which are available and all use the 1988 Account result including for tax purposes the results of syndicates in run off as at 31 December 1990 (taxable/allowable in the 1988/89 year of assessment) as an example. It should be noted that the term underwriting loss refers to the overall underwriting result, including syndicate investment income and after taking account of any stop loss recoveries but excludin~ syndicate capital gains or losses. 2. Relief against other income of the same vear of assessment, Section 380 allows for the offset of a trading loss against total income for the same year of assessment. In the case of Lloyd s Underwriters, the underwriting loss must first be set against any withdrawal from the Special Reserve Fund, 3. Re lief against other income of the DrecedinQ Year of assessment, If the loss cannot be fully relieved in the same year of assessment, then a claim can be made under section 450 (3) to obtain relief against total income of the preceding year of assessment - i.e. 1987/88 - provided that the individual was a Member of Lloyd s in that earlier year. 4. Garrv forward of losses a~ainst future urofits. Any underwriting losses that remain unrelieved in either the current or preceding years may be carried forward and offset against future Mnd erwritin~ profits in accordance with Section 385. For these purposes, the term underwriting profits includes all Lloyd s investment income i.e. investment income from the Lloyd s Deposit, Personal and Special Reserve Funds. 5. Loss relief in the early Years of underwriting. Under Section 381, a Name is able, in respect of the first four years of assessment during which he or she is underwriting, to elect for an underwriting loss to be carried back against the total income of the three preceding years. Taking the example of a Name who commenced underwriting on or after 1 January 1985, he or she can elect for a 1988 Account loss to be carried back against the total income of 1985/86, 1986/87 and 1987/88, taking the earliest years first. It is not possible to obtain relief for a loss under these provisions and also claim relief for the same loss under any of the preceding provisions. If relief cannot be given for the whole of the loss under one provision, it may be possible to relieve the balance under another provision.

8 AvDendix 1. Daze 2, 6. Terminal loss relief. It is possible for a resigning Name with an underwriting 10SS for the last twelve months of membership to make a claim for terminal 10SS relief under Section 388 provided that he or she is not involved in any run-off syndicates. The effect of such a claim is that a loss for the 1988 Account can be carried back against Lloyd s income for 1987/88, 1986/87 and 1985/86 in that order. For these purposes Lloyd s income includes the underwriting result and income from the Lloyd s Deposit, Personal and Special Reserve Funds. 7.~~of loss reliefs Where a Name resigns, but is still involved in syndicates that are running-off, then for taxation purposes he or she is treated as continuing to trade. The full range of loss reliefs, except terminal loss relief would be available as appropriate, If a resigning Name is locked into run off syndicates, then terminal loss relief will not be available until participation in all such syndicates ceases. 8. Finance Act 1991 Relief for trading losses apainst chargeable gains. Section 72 of the 1991 Finance Act introduced new provisions enabling the offset of losses of unincorporated businesses arising in 1991/92 and subsequent years against an individual s chargeable gains. For Members Of Lloyd s, the 1991 Account result (including the results from syndicates in run-off as at 31 December 1993) will be the first year in respect of which this relief applies. However, this relief cannot be claimed against chargeable gains arising in a year of assessment commencing after the trade has ceased. 6142S/67