Funded accounting

[Louisa]

I'm puzzled by a note in the core reading that taxation differs between Lloyds syndicates and companies using funded accounting. It says that for companies tax is "related back" to the first year. (Acted notes SA3-05 p6 section 3.2.)
Anyone know what this means in practice? Do you have to estimate the profit in the first year and pay tax on it then? Or if the tax isn't paid until the third year, in what way is it "related back"?
Cheers,
Louisa

 

[Ian Senator]

Nothing very exciting I'm afraid - simply that they are taxed at the end of the three years, on business they wrote back in the first year.

 

[Louisa]

How is that different from the Lloyds syndicates then? I thought they were also taxed in the third year when the fund is closed.

 

[Ian Senator]

Ah, sorry, my mistake, I misread your first post.

What I described was what happens in Lloyd's - they get a 'tax holiday'.

For normal companies, as far as I know, it's as you say, ie the tax is calculated annually but then 'attributed' to the relevant u/w year.

 

[moomanoid]

I think I read somewhere that within Lloyds you sometimes have to prepare 'earned' accounts (AY). I think it was in one of the guidance notes or something.

Does anyone have any more info on this? I think it's something to do with the 'modified UK basis' used for Trust Fund calculations.

 

[Ian Senator]

You're right, for some purposes Lloyd's use an AY basis of accounting - but I'm not sure it's covered anywhere in the course material in any detail.

Perhaps someone currently in Lloyd's could help us out here and tell us what they use it for??