Consultation outcome

Corporation tax: response to accounting changes for insurance contracts – summary of responses

Updated 20 July 2022

1. Introduction

1.1. This document sets out the government’s response to the consultation ‘Corporation tax: response to accounting changes for insurance contracts’.

1.2. The twelve-week consultation opened on Tax Administration and Maintenance Day on 30 November 2021 and closed on 22 February 2022.

1.3. The consultation built upon HMRC’s extensive engagement with the insurance sector through a working group. This group has operated since November 2020 to understand the tax impacts of the new international accounting standard for insurance contracts, IFRS 17 Insurance Contracts (IFRS 17).

1.4. The consultation covered the corporation tax implications of IFRS 17 as well as the revocation of the requirement for life insurance companies to spread acquisition expenses over seven years for tax purposes.

1.5. The aim of the consultation was to inform the design of the legislation which will be made by regulations using the power introduced in section 29 and schedule 5 Finance Act 2022.

1.6. The policy objective is to help mitigate the tax consequences of the accountancy change, which will have significant cashflow and regulatory implications for some insurers. This 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. The measure will also mitigate the Exchequer impacts of the accountancy change.

1.7. On 16 May 2022 the UK Endorsement Board endorsed IFRS 17. This means that IFRS 17 will become mandatory for UK companies reporting under International Financial Reporting Standards (IFRS) for accounting periods beginning on or after 1 January 2023. Companies reporting under UK Generally Accepted Accounting Practice (GAAP) will not be affected by the IFRS 17 change.

1.8. At Autumn Budget 2021 the government announced that it would spread the IFRS 17 tax transitional amount arising from the long-term business of life insurers. After consideration of the consultation responses and figures provided the government has decided that spreading will be on a straight-line basis for a fixed duration of 10 years.

1.9. The tax regulations in response to IFRS 17 will be laid during autumn 2022 and will apply to accounting periods beginning on or after 1 January 2023.

1.10. A total of 18 consultation responses were received from:

• 2 representative bodies for insurance companies
• 12 insurance companies
• 4 accountancy and professional service firms

1.11. Chapter 2 of this document summarises the responses received to each consultation question and sets out the government’s proposals.

1.12. Chapter 3 sets out the government’s next steps.

1.13. Annex A provides a list of respondents.

1.14. HMRC is grateful to respondents for their valuable contributions, which have all been considered carefully.

2. Responses

2.1. This chapter summarises the responses to the 17 consultation questions.

2.2. The questions were split into two categories:

• those relating to addressing the transitional tax impact of IFRS 17
• those relating to the repeal of section 79 Finance Act 2012 (FA 2012), the requirement for life insurance companies to spread acquisition expenses over seven years for tax purposes

2.3. This chapter follows the same structure as the consultation document.

Addressing the transitional impact of IFRS 17 for tax purposes – Part 1: Scope of the IFRS 17 transitional tax rules

2.4. The consultation sought views as to whether certain entities or situations should come within the scope of the government’s IFRS 17 transitional tax rules.

Life insurers

2.5. HMRC had seen evidence from working group members indicating that life insurers will have a large one-off transitional profit or loss arising from the transition to IFRS 17, depending on the nature of the business written. At Autumn Budget 2021 the government therefore announced the decision to spread the transitional impact of IFRS 17 for the long-term business of life insurers.

2.6. The IFRS 17 transitional tax rules for the long-term business of life insurers will apply to entities already reporting under IFRS 4 (the interim standard for insurance contracts) who move to IFRS 17 and to entities changing from reporting under UK GAAP to IFRS 17.

General insurers

2.7. At the time the consultation opened, the evidence HMRC had seen from working group members indicated that the transitional impact faced by general insurers upon transition to IFRS 17 was less significant than for life insurers. Consequently, the government had not yet decided whether spreading of the transitional impact of IFRS 17 should also apply to general insurers.

Question 1: If you write general insurance business: - Please provide figures demonstrating the transitional impact of moving to IFRS 17 for your general insurance business. - Do you think general insurers should be included within the IFRS 17 transitional tax rules? - If so, should the same transitional tax rules apply to general insurers as life insurers, or would some differences in the rules be necessary?

2.8. There were 11 responses to this question.

2.9. HMRC is grateful to respondents who provided figures illustrating the expected transitional impact arising to their business from the adoption of IFRS 17. The figures provided support the view that the transitional impact for general insurers will be significantly less than the transitional impact faced by life insurers. Further comments on the anticipated size of the transitional impact are not communicated here due to the commercial sensitivity of this information.

2.10. Some respondents thought that general insurers should be included for consistency, but that they should be subject to a different length of transitional spread because of the short-term nature of general insurance business, or that there should be optionality as to whether the rules applied to them.

2.11. Other respondents expressed the view that general insurers should not be included due to the short-term nature of the adjustments and said that there will be no material adjustment to retained earnings upon transition. They highlighted that if general insurers were required to spread the transitional impact it could create a significant tax distortion.

2.12. One respondent summarised, ‘As general insurance risks are, typically, one year or less in duration, we expect transitional differences arising from general insurance business to reverse over a much shorter period than those arising from long-term business. Consequently, while transitional measures are essential for life insurance business, the same measures may not be needed for general insurers.’

2.13. Many respondents did not have a strong view on whether general insurers should be included or not.

Government response

2.14. The government has decided that the IFRS 17 transitional tax rules will apply to the long-term business of insurance companies, including composite insurers. In defining who is in scope, reference will be made to section 65 FA 2012 ‘Meaning of insurance company’ and section 63 ‘Meaning of ‘long-term business’.

2.15. The transitional tax rules will not apply to entities writing only general insurance, or to the general insurance business of composite insurers. The government has seen insufficient evidence to support the need for tax transitional rules for general insurance business. Instead, general insurance will be subject to the normal change of accounting practice rules.

Non-insurers issuing insurance contracts

2.16. IFRS 17 applies to specific types of contract, rather than types of entity. Non-insurers may issue contracts which meet the IFRS 17 definition of an insurance contract and will therefore be required to apply IFRS 17 if they report under International Accounting Standards (IAS).

Question 2: If the IFRS 17 transitional tax rules were not to apply to non-insurance entities, please explain any significant tax issues you foresee for non-insurers.

2.17. There were 7 responses to this question.

2.18. There was a consensus that non-insurance entities are not anticipated to face significant tax issues from the adoption of IFRS 17.

Government response

2.19. Given that the non-insurers are not expected to have a significant transitional impact the government has decided that they will not be within the scope of the IFRS 17 transitional tax rules. Instead, non-insurers will be subject to the normal change of accounting practice rules.

Entities moving from UK GAAP to IAS in an accounting period beginning on or after 1 January 2024

2.20. There may be entities that currently report under UK GAAP and decide to transition to IAS after their first accounting period beginning on or after 1 January 2023. It is necessary to decide whether and how such a later transition should be covered by the IFRS 17 transitional tax rules.

Question 3: - Should entities adopting IFRS 17 on or after 1 January 2024 come within the IFRS 17 transitional tax rules? - If the answer to a) is yes, should those entities have i) the full duration of the transitional spread or ii) should the transitional spread be reduced proportionately? - Should there be a time limit for adoption of IFRS 17, in order to be covered by the IFRS 17 transitional tax rules?

2.21. There were 16 responses to this question.

2.22. The responses were unanimous that the transitional rules should apply to entities adopting IFRS 17 after 1 January 2023. Most respondents thought that those entities should have access to the full duration of the transitional spread and that there should be no time limit to adopt IFRS 17 to be covered by the IFRS 17 transitional tax rules.

2.23. Respondents’ rationale was to achieve consistency and fairness as entities will face the same cash flow and regulatory impacts regardless of the date that IFRS 17 is adopted. Many respondents highlighted that the transitional provisions for adoption of IFRS 9 will be in force indefinitely and saw no reason that the IFRS 17 tax transitional rules should have a limited time for adoption. Others also highlighted that a cut-off date could impact commercial decisions.

Government response

2.24. In line with the view of respondents, the government has decided that the IFRS 17 tax transitional rules will apply equally to those adopting IFRS 17 on, or at any time after, 1 January 2023; there will be no time limit. All life insurers, regardless of the date of adoption, will have the full duration of the IFRS 17 transitional spread in respect of their long-term business.

Transfers of business from an entity reporting under IAS to one reporting under UK GAAP, or, alternatively, from an entity reporting under UK GAAP to one reporting under IAS

2.25. There may be circumstances where a business (or part of a business) is transferred, after being subject to the IFRS 17 transitional tax rules, to an entity which sits outside those rules. Conversely, a transfer could bring a business (or part of a business) from an entity that sits outside the rules into an entity subject to the IFRS 17 transitional tax rules after that transition has taken place.

Question 4: How should the IFRS 17 transitional tax rules deal with transfers of business between third parties or intra-group where one entity reports under IFRS 17 and the other does not, bearing in mind question 3? - from IAS (IFRS 17) to UK GAAP reporters - from UK GAAP to IAS (IFRS 17) reporters

2.26. There were 15 responses to this question. There were a wide variety of views and suggestions as well as acknowledgement of the complexity of the issue.

2.27. For transfers from an IAS (IFRS 17) to UK GAAP reporter, the majority of respondents agreed that any remaining transitional amount should either crystallise in the transferor, or transfer with the business to emerge in the transferee. Concerns were raised that the former of these options could leave the transferor with losses that it may be unable to relieve.

2.28. For transfers from a UK GAAP to IAS (IFRS 17) reporter, the majority of respondents were of the opinion that no action would be required from a tax perspective as the future profit profile of the business should be factored into the purchase price and no transitional amount will arise in either company’s accounts.

2.29. Respondents also commented on the need to consider transfers between two IAS (IFRS 17) reporters. One respondent suggested a stand in the shoes approach.

Government response

2.30. The government is currently minded to implement the approaches set out below for transfers of business. Whether the same rules will apply to third party and intragroup transfers of business is affected by the issues covered in question 5 below.

Transfers from an IAS (IFRS 17) to UK GAAP reporter

2.31. Where the transferor is reporting under IAS (IFRS 17) and the transferee is reporting the acquired business under UK GAAP the transferee will stand in the shoes of the transferor as far as any remaining IFRS 17 transitional amount is concerned. In other words, the IFRS 17 transitional amount will transfer with the transferring business.

Transfers from a UK GAAP to IAS (IFRS 17) reporter

2.32. Consistent with the majority of respondents views, where the transferor is reporting under UK GAAP and the transferee is reporting under IAS (IFRS 17) there will not be any additional tax rules. No IFRS 17 transitional amount will arise in either company’s accounts. Both entities will reflect the profit they earn from the business in their Profit and Loss (P&L) accounts, and be taxed accordingly.

Transfers between 2 IAS (IFRS 17) reporters

2.33. Where the transfer of business takes place between 2 IAS (IFRS 17) reporters, the transferee will stand in the shoes of the transferor as far as any remaining IFRS 17 transitional amount is concerned. In other words, the IFRS 17 transitional amount transfers with the transferring business. For example, if, at the end of year five after the transition to IFRS 17, Basic Life Assurance and General Annuity Business (BLAGAB) business is transferred from one IAS reporter to another, then the remaining IFRS 17 transitional amount should transfer to the transferee company and be relieved in that company over the remaining five years.

Section 129 FA 201

2.34. Section 129 FA 2012 applies to intra-group transfers of long-term business and demutualisation. It provides tax neutrality on an intra-group transfer of business unless the transferor and transferee recognise different amounts for the assets and liabilities transferred.

Question 5: Do you agree section 129 FA 2012 (intra group transfers and demutualisation) still works as intended after the adoption of IFRS 17? In particular, are there any issues with regards to transfers between companies adopting IFRS 17 and non-IFRS 17 adopters?

2.35. There were 11 responses to this question.

2.36. Many respondents highlighted that this is a complex area.

2.37. A wide variety of views were expressed ranging from those who thought there could be difficulties, to those who thought the rules would continue to operate as intended.

2.38. Some respondents said that the principles of section 129 FA 2012 are still relevant and thought that if HMRC applies section 129 in a pragmatic way then it will continue to work as intended after the adoption of IFRS 17.

Government response

2.39. HMRC will undertake further engagement with the insurance sector to discuss the interaction of the IFRS 17 tax transitional rules with the existing transfer of business rules in section 129 FA 2012 before deciding what (if any) additional rules are required to ensure that section 129 FA 2012 continues to work as intended.

Entities moving from IAS to UK GAAP before the transitional amount spread for tax purposes has unwound

2.40. Any entity spreading the IFRS 17 tax transitional amount will have to make an adjustment for tax purposes each year, until the full transitional amount has unwound.

Question 6: What should happen to the balance of the transitional amount if an entity moves from IAS to UK GAAP before the transitional amount spread for tax purposes has been fully unwound?

2.41. There were 15 responses to this question.

2.42. Several respondents pointed out that this scenario will be rare and it would be more likely for an entity to consider moving from IAS to UK GAAP before IFRS 17 becomes mandatory.

2.43. Many different approaches were proposed to deal with any IFRS 17 transitional amount balance upon a move from IAS to UK GAAP. Some respondents suggested applying transitional rules to the UK GAAP transitional amount, resulting in two different spread amounts. Others suggested the balance of the IFRS 17 transitional amount should be netted off against the transitional impact of moving from IAS to UK GAAP and then the balance should either be spread or brought into tax immediately. Others suggested spreading the UK GAAP transitional amount while the IFRS 17 transitional amount runs off over the remaining spreading period. Others thought the remaining IFRS 17 tax transitional amount should be crystalised on transition from IAS to UK GAAP and the transition to UK GAAP should be dealt with separately.

Government response

2.44. After considering the implications of the different approaches, the government is minded to adopt the approach that if an entity moves from IAS to UK GAAP before the IFRS 17 transitional amount spread for tax purposes is fully unwound then the IFRS 17 transitional amount will continue to be brought into tax in the same manner as before.

Addressing the transitional impact of IFRS 17 for tax purposes – Part 2: Design of the transitional tax rule and calculation of the transitional amount

IFRS 9

2.45. Many companies will be adopting both IFRS 9 Financial Instruments and IFRS 17 Insurance Contracts simultaneously on 1 January 2023. Only the IFRS 17 transitional amount will fall under the IFRS 17 transitional tax rules. The IFRS 9 transitional amount will be subject to the normal change in accounting practice rules.

Question 7: Will the IFRS 17 transitional adjustment arising on the IFRS 17 tax transition date be readily identifiable from the accounting records?

2.46. There were 18 responses to this question.

2.47. The responses were unanimous that the IFRS 17 transitional adjustment will be readily identifiable from the accounts and will be distinguishable from any other accounting standard changes such as that arising from the adoption of IFRS 9 or other International Accounting Standards. The relevant transitional disclosures or separate notes to the accounts should also provide further explanation where the amounts are material.

Government response

2.48. The government has decided that the starting point for calculating the IFRS 17 transitional adjustment will be derived from the accounting results in the statutory accounts. The calculation will compare, at the same date, the retained earnings figures before the adoption of IFRS 17 to the restated retained earnings figure on the adoption of IFRS 17 and identify the part of any difference which is the result of adopting IFRS 17.

Length of transitional spread – call for evidence

2.49. The consultation document set out that the government proposes to apply a fixed duration of transitional spread to all entities covered by the IFRS 17 transitional tax rules, subject to any difference in duration for life and general insurers. The consultation document then proposed that there will not be optionality about whether the rules apply and there will be no de-minimis in applying the rules. It explained that the most appropriate duration of the IFRS 17 transitional spread will be informed by HMRC’s modelling of the tax transitional impacts.

Question 8: Call for evidence: HMRC request groups’ own assessment of one-off transitional profit or loss that will be created on transition to IFRS 17. HMRC appreciate the commercial sensitivity of this data. It will be used by a small group of individuals in HMRC directly working on IFRS 17, and only for the purpose of determining the appropriate duration of the transitional spread and assessing the impact to the Exchequer.

2.50. HMRC are grateful to the groups who provided data. The figures provided are highly confidential and commercially sensitive. For that reason the responses have not been summarised.

2.51. The majority of respondents favoured a straight line spread for administrative ease.

2.52. Many respondents supported a 10-year straight line spread for life insurers.

Government response

2.53. After consideration of the responses and figures provided the government has decided to spread the IFRS 17 tax transitional amount on a straight-line basis for a fixed duration of 10 years. This is a reasonable reflection of the range of contract lengths expected on transition, and will smooth, as far as possible, both the impacts on insurers’ tax liabilities and on Exchequer receipts, the two main aims of the measure.

Addressing the transitional impact of IFRS 17 for tax purposes – Part 3: Other accountancy related issues

2.54. A number of other accountancy related issues had been identified which may have a tax impact. The consultation sought further details about each of them.

A: Reinsurance

2.55. Under IFRS 17, a reinsurance contract is accounted for as a standalone contract, independent of the accounting for the underlying insurance contracts. For many entities, IFRS 17 represents a significant change. Common existing practice is to account for reinsurance contracts held using a ‘mirroring approach’, essentially matching reinsurance contract revenue, costs, assets and liabilities to the underlying insurance contracts. The government sought to understand whether this change will create any issues for tax.

Question 9: Will any tax mismatches arise from this accounting treatment other than timing differences? Tax mismatches should be taken to mean both any mismatches between the reinsurance and underlying insurance contracts and any mismatches between the cedant and reinsurer.

2.56. There were 18 responses to this question.

2.57. Many respondents did not anticipate tax mismatches arising.

2.58. Respondents who thought that tax mismatches could arise thought that they would be timing differences.

Government response

2.59. The government has decided that the tax treatment should follow the accounts and does not intend to introduce additional rules.

B: Insurance finance income or expenses

2.60. Paragraph 87 of IFRS 17 defines insurance finance income or expenses as ‘the change in the carrying amount of the group of insurance contracts arising from:

• the effect of the time value of money and changes in the time value of money
• the effect of financial risk and changes in financial risk
• excluding any such changes for groups of insurance contracts with direct participation features that would adjust the contractual service margin but do not do so when applying paragraphs 45(b)(ii), 45(b)(iii), 45(c)(ii) or 45(c)(iii). These are included in insurance service expenses.’

2.61. If such entries were brought into the ‘I-E’ tax result it would cause anomalies. However, it is thought that insurance finance income or expenses will not feature within the I-E calculation, as they represent the movement in the value of an insurance contract asset or liability.

Question 10: Do you agree insurance finance income or expenses should not feature within the I-E calculation, as they represent the movement in the value of an insurance contract asset or liability?

2.62. There were 11 responses to this question.

2.63. The responses unanimously agreed that insurance finance income or expenses should not, and are not expected to, be included within the I-E calculation.

Government response

2.64. The government notes respondents’ agreement that insurance finance income or expenses should not be included within the I-E calculation. No further action is required to achieve this.

Other Comprehensive Income (OCI)

2.65. Under IFRS 17, there is an accounting policy choice as to whether to recognise insurance finance income or expenses in full in the income statement, or disaggregated between the income statement and OCI. Accounting entries recognised in OCI are not generally brought into account for tax purposes until they are subsequently recognised (‘recycled’) in the income statement. We understand that in certain circumstances IFRS 17 accounting entries could be taken to OCI and not subsequently recycled to the income statement. The consultation invited further details to determine whether any changes are needed to tax legislation as a result of the implementation of IFRS 17.

Question 11:

• Do you agree that, in certain circumstances, IFRS 17 accounting entries could be taken to OCI and not subsequently recognised (‘recycled’) in the income statement?
• Do you have examples of situations where this might arise?
• If IFRS 17 accounting entries are recognised in OCI and not recycled to the income statement, should these IFRS 17 accounting entries be brought into account for tax?

2.66. There were 15 responses to this question.

2.67. Many respondents did not plan to use the IFRS 17 OCI option.

2.68. The majority of respondents who have considered the OCI option expected that accounting entries taken to OCI would be recycled to the income statement and subject to tax. However, a few respondents thought that in certain circumstances amounts recognised in OCI may not be recycled to the income statement, with one respondent giving some examples to illustrate.

Government response

2.69. The government notes that in certain limited circumstances IFRS 17 accounting entries could be taken to OCI and not subsequently recycled to the income statement. This situation did not arise under IFRS 4, the accounting standard that IFRS 17 replaces.

2.70. The government has therefore decided to introduce a rule analogous to s320A of CTA 2009 to ensure that where an insurance contract matures, expires or is derecognised in a period of account (and so is no longer recognised in accounts prepared under IFRS 17), any amounts remaining in OCI are brought into account for tax.

Addressing the transitional impact of IFRS 17 for tax purposes – Part 4: Further comments

Question 12: Are there any areas of the current FA 2012 legislation that respondents think will not work as intended following the adoption of IFRS 17?

2.71. There were 12 responses to this question.

2.72. The majority of respondents could not foresee any areas that would not work as intended.

2.73. One respondent thought that the wording of section 92(6) FA 2012 in relation to BLAGAB reinsurance should be reformed. A few respondents mentioned issues concerning the operation of the BLAGAB reinsurance rules in their answers to other consultation questions.

2.74. One respondent thought that section 103 TIOPA 2010 would refer to items no longer on the income statement and questioned whether an amendment of this section would be required, although they did note that insurers should be able to identify the amounts.

2.75. One respondent thought that the taxation of mutuals should be given further consideration.

2.76. In answering a different question one respondent highlighted an issue concerning the application of the anti-hybrids legislation.

Government response

2.77. The government notes the topics highlighted and will continue to monitor whether changes are necessary.

Policyholder Impacts

Question 13: Do you anticipate there could be any policyholder impacts as a result of this measure?

2.78. There were 14 responses to this question.

2.79. Most respondents did not foresee any first order policyholder impacts as IFRS 17 does not change the underlying contractual arrangements between the insurance company and its policyholders.

2.80. A few respondents mentioned a potential second order impact of the adoption of IFRS 17 on with-profit funds.

Government response

2.81. Any potential policyholder impacts are thought to result from entities adopting the accounting standard. The government is reassured that respondents do not anticipate any significant impacts for policyholders as a result of the government’s measure to spread the transitional impact of IFRS 17.

Other areas

Question 14: Are there any areas which you feel this consultation has not covered and you wish to bring to our attention? If so, please provide further details.

2.82. There were 16 responses to this question, with a wide variety of topics mentioned, including:

• ensuring that the IFRS 17 tax transitional rules are simple to operate with a first principles approach to calculating the transitional amount
• the interaction of the IFRS 17 transitional rules with the Organization for Economic Cooperation and Development (OECD) Pillar 2 rules
• whether there is still a need for IFRS 17 reporters to provide Appropriate Amount certificates, as removal of this requirement would reduce the administrative burden
• the publication of guidance clarifying the definition of ‘revenue’ as applied to insurance groups for Country by Country Reporting purposes, as under IFRS 17 there will be significant changes to the income statement
• the interaction of the IFRS 17 tax transitional rules with existing rules that concern changes of accounting in section 183 CTA 2009
• the fact that entities are likely to review their commercial allocation methodology
• how information is reported to HMRC under Making Tax Digital for Corporation Tax
• whether the 50% loss restriction rule should apply to losses spread under the IFRS 17 tax transitional rules
• the consultation did not cover overseas insurance companies with a UK permanent establishment
• the International Accounting Standards Board (IASB) are currently considering ‘Business Combinations under Common Control’ which could result in changes to the accounting for transfers of business in the future

Government response

2.83. The government notes the topics raised and will continue to monitor whether changes are necessary.

Repeal of section 79 Finance Act 2012

Current requirement

2.84. Section 79 FA 2012 requires life companies writing BLAGAB to spread their acquisition expenses (as defined in section 80 FA 2012) over seven years for tax purposes regardless of when they are recognised in the accounts. This rule seeks to align the timing of the income and expense and to guard against potential acceleration of relief for the expense.

Proposal and rationale

2.85. Commercial changes in the life insurance market mean that the need for spreading has reduced in recent years. Additionally, it will be more complex for life insurers writing BLAGAB to undertake the section 79 FA 2012 calculation under IFRS 17 as there will be added complexity in identifying the amounts. Repealing section 79 and following instead the timing of acquisition expenses in the accounts would simplify matters for life insurers.

2.86. To maintain a level playing field the consultation proposed that this simplification would apply to:

• all life insurers regardless of which accounting standard they prepare their accounts under (so including those reporting under UK GAAP rather than IAS)
• all BLAGAB (so including both investment contracts and insurance contracts)
• accounting periods commencing on or after 1 January 2023, to coincide with the adoption of IFRS 17

2.87. Under this proposal, section 79 would be repealed with effect from 1 January 2023 and any unrelieved amounts would be run off, while ensuring that there is no double relief or restricted relief.

Question 15: Do you have any concerns about the repeal of section 79 FA 2012, meaning that all life insurance companies writing BLAGAB will follow the timing of acquisition expenses in their accounts?

2.88. There were 11 responses to this question.

2.89. All respondents welcomed the proposed simplification and many noted that the amount of new BLAGAB being written is relatively small compared to previous decades.

2.90. The majority of respondents had no concerns. However, some respondents noted a concern about whether some companies would be able to identify pre-2023 deferred acquisition expenses in their accounting entries to ensure that relief is only given once.

Question 16: Are there any particular circumstances HMRC should consider when designing transitional rules for the repeal?

2.91. There were 13 responses to this question.

2.92. Respondents expressed their preference for the change to apply from 1 January 2023 for administrative ease.

Question 17: Under IFRS 17 the period that acquisition expenses are spread over will depend on the expected longevity of the business. For BLAGAB what longevity of business is typical? Is it likely this will be seven years or more?

2.93. There were 10 responses to this question.

2.94. There were a wide range of views with respondents highlighting that this is dependent on the type of business written. There was some alignment to the view that the longevity of BLAGAB would typically be between 5 and 10 years.

Government response to questions 15 to 17

2.95. The government has decided to repeal section 79 FA 2012 with effect from 1 January 2023. The rules will continue to allow for relief for expenses which have already been incurred and have been spread under the previous rules while ensuring that there is no double deduction of expenses.

3. Next steps

3.1. HMRC will continue to engage with the insurance sector through the IFRS 17 working group, particularly on the complexities around the interaction of the IFRS 17 tax transitional rules with the existing transfer of business rules in section 129 FA 2012.

3.2. The draft regulations will be published and consulted on over summer 2022.

3.3. The regulations will be laid during autumn 2022, to apply to accounting periods beginning on or after 1 January 2023.

Annex A: List of respondents to the consultation

• ABI
• Aegon
• Ageas
• Aviva
• BDO LLP
• Direct Line
• Grant Thornton
• Just
• KPMG
• ILAG
• Legal & General
• Lloyds Banking Group
• Pension Insurance Corporation
• Phoenix
• PwC
• Rothesay Life
• Swiss Re
• Zurich

*GAAP]: Generally Accepted Accounting Practice *[IFRS]: International Financial Reporting Standards *[FA 2012]: Finance Act 2012 *[IAS]: International Accounting Standards *[OCI]: Other Comprehensive Income *[CTA 2009]: Corporation Tax Act 2009 *[P&L]: Profit and Loss *[BLAGAB]: Basic Life Assurance and General Annuity Business *[TIOPA]: Taxation (International and Other Provisions) Act 2010 *[OECD]: Organization for Economic Cooperation and Development *[IASB]: International Accounting Standards Board