Chapter LAM07020

Published date05 August 2019
Record NumberLAM07020
CourtHM Revenue & Customs

The starting point for the trade profit calculation is the profit before tax as disclosed by the entity accounts. Of course the accounts do not distinguish between the profits attributable to the BLAGAB and non-BLAGAB businesses, which is determined by FA12/CH7 (see LAM05110). If prepared under IFRS the accounts may not distinguish between general insurance business and long-term business.

Trade profits are charged under CTA09/S35, which means that they must be calculated in accordance with UK generally accepted accounting practice (UK GAAP) or International Financial Reporting Standards (IFRS). Both include accounting standards which specifically deal with insurance contracts: FRS 103 ‘Insurance Contracts’, in the case of UK GAAP, and IFRS 4 ‘Insurance Contracts’ in the case of IFRS.

In general there are no major current differences between IFRS and UK GAAP; however, this may change in future as a new international accounting standard, IFRS 17 ‘Insurance Contracts’, is proposed to replace IFRS 4 for 2022 onwards.

Both FRS 103 and IFRS 4 include definitions of insurance contracts and insurance risk; both standards apply to insurance and reinsurance contracts.

IFRS 4:

  • defines an insurance contract
  • disallows within liabilities provisions for future...

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