LAM16020 - IFRS 17 Transitional Provisions: Calculation, trading apportionment and treatment of the transitional amount: SI2022/1165/Regulations 3-6
The starting point for calculating the IFRS 17 tax transitional amount is the accumulated profits less accumulated losses in the statutory accounts. The calculation of the IFRS 17 tax transitional amount compares, at the same date, the accumulated profits less accumulated losses before the adoption of IFRS 17 to the restated accumulated profits less accumulated losses (subject to the adjustments set out below).
Although the IFRS 17 tax transitional amount is derived from the accounts it is not the same as the transitional amount for accounting purposes. The date of transition for accounting purposes is as at the beginning of the earliest period of account presented in the first set of IFRS 17 accounts. For an insurer adopting IFRS 17 on 1 January 2023, this would be 1 January 2022 (assuming only one year of comparatives is presented).
However, to calculate the IFRS 17 tax transitional amount for an insurer that adopts IFRS 17 on 1 January 2023 and prepares annual accounts to the calendar year, a comparison will be made between:
- The accumulated profits less accumulated losses shown as a closing balance in the restated balance sheet as at 31 December 2022 produced in the 31 December 2023 accounts (i.e. the first prepared in accordance with IFRS 17 (the “first IFRS 17 balance sheet”), and
- The accumulated profits less accumulated losses shown as a closing balance in the 31 December 2022 balance sheet in the 31 December 2022 accounts (i.e. the last set of accounts prepared before the adoption of IFRS 17, which could have been prepared in accordance with either IFRS or UK GAAP (the “pre-IFRS 17 balance sheet”).
The IFRS 17 tax transitional amount is calculated as follows.
- Both the closing balances of accumulated profits less accumulated losses in the first IFRS 17 balance sheet and pre-IFRS 17 balance sheet are subject to any adjustment in calculating the profits of a trade for corporation tax.
- Following these adjustments, the pre-IFRS 17 closing balance is deducted from the IFRS 17 closing balance.
- Amounts relating to the adoption of IFRS 9, or which do not solely relate to the adoption of IFRS 17, are excluded from the result.
- The result is apportioned between the long-term and other business that the company is carrying on, on the date IFRS 17 is adopted. The apportionment follows the IFRS 17 disclosure requirements per the company’s accounts for the first accounting period in which IFRS 17 is used. Failing that the apportionment is made on a just and reasonable basis.
- The “IFRS 17 tax transitional amount” is the amount allocated to the company’s long-term business.
Where the business consists of both BLAGAB and non-BLAGAB, the IFRS 17 tax transitional amount is allocated between the two businesses in accordance with an acceptable commercial method which fairly represents the contribution made by each business to the accounting profit or loss in the period immediately before the adoption of IFRS 17. This follows the more general apportionment rules in FA12/S98 and FA12/S115 (see LAM05000 onwards) so a common approach to apportionment must be applied to the trade profits in the period before the first IFRS 17 accounting period and the IFRS 17 tax transitional amount.
If the company is an overseas life insurance company, the apportionment should reflect the method in which assets are attributed to its permanent establishment in the UK (see CTA09/PART2/CH4).
Depending on whether the IFRS 17 tax transitional amount is a positive or negative figure, it is treated as either a receipt or expense of the company’s long-term business respectively. The receipt or expense is then spread equally over 10 years and taken into account in calculating the BLAGAB trade profit or loss and the non-BLAGAB trade profit or loss in each accounting period beginning on or after 1 January 2023 or the first accounting period in which IFRS 17 is adopted if later.