Rebates of management fees and mutual insurers

Prior to yesterday if you had asked me are rebates of AIF management fees paid to insurers taxable I would have said they definitely were and that this was probably because of FA 2012 section 92.  But now as far as mutual insurance companies are concerned I'm not convinced this is the case.

FA 2012 section 92 reads as follows

"92(1)  This section applies if–

(a)an insurance company has receipts that are taken into account in calculating its BLAGAB trade profit or loss (see section 136) for an accounting period,

(b)the receipts would not fall within the charge to corporation tax apart from this section, and

(c)the receipts are not excluded receipts.

92(2)  The appropriate amount of the receipts is an I – E receipt of the company for the accounting period."

I'm  happy that this brings rebates paid to proprietary companies in to the I-E tax charge but does it tax such amounts when paid to a mutual company?  I would think that it doesn't as the legislation states that the payments "are taken in to account in calculating its BLAGAB trade profit." Of course a mutual doesn't have such a calculation so it can't apply can it? (Or would a lawyer read in some sort of would have been wording ?)

If the amount isn't taxable under FA 2012 section 92 then might it be taxable under some other category of BLAGAB income.  Handily there is a definition of income in FA 2012 section 74.  I won't reproduce this as its quite long but there are three categories that I think need to be considered

"(h)income of the company chargeable under Chapter 7 of Part 10 of CTA 2009 (annual payments not otherwise charged),

(i)income of the company arising from a source outside the United Kingdom which is chargeable under Chapter 8 of Part 10 of CTA 2009 (income not otherwise charged), and

(j)income of the company chargeable under any provision to which section 1173 of CTA 2010 (miscellaneous charges) applies other than section 752 of CTA 2009 (non-trading gains on intangible fixed assets)."

I did wonder about section h but in the guidance to insurers on Revenue and Customs Brief 04/13 we have confirmation that rebates paid to insurance companies are not annual payments  in the guidance to insurers on Revenue and Customs Brief 04/13. (Post of 18th June gives the link for this.)

Section i may well catch rebates paid by a fund manager outside of the UK but is clear that it would not apply to payments from a UK fund manager.

Section j is a tiresome section as section 1173 CTA 2010 is a list of miscellaneous charges included elsewhere in CTA 2009 and CTA 2010.  I think its purpose is security against anything that's missed in sections a - i.  It does throw up one particular problem as one of the miscellaneous charges in 1173 is Chapter 8 of Part 10 of CTA 2009 which is already referred to in paragraph i.

However, CTA 2009 979 (which is the main section of chapter 8 of part 10 of CTA 2009) is unlike section of FA 2012 74 (1) (h) not limited to amounts that have a non  - UK source.

So does this have the effect of making rebates paid to mutual insurance companies taxable? You would need a lawyer to sort this one out but I'd guess that it doesn't.  That is there would be no point in section i if it didn't serve to restrict the CTA 979 charge to non - UK income.  But there's plenty of room for doubt here as you are then left with the question of what's the point of FA 2012 74 (1) (j)?

It would be interesting to hear if anyone else has views on this point. I think there is probably enough doubt around the conclusion to continue to advise mutual clients to include rebates of management charges as taxable in the I-E but perhaps refer to the possibility that other approaches could be adopted.