I am struggling to understand "for a mutual, as there are no s/h, the technical account results is zero". What is the cause and effect between "no s/h" and "technical account is zero"? Also because technical account is zero, there is no profit, does this mean there is no tax on long term business? How does minimum profit tax come into play in this? Thanks very much.
The technical account is basically designed to capture the long term business profits attributable to shareholders. Since all profits in a mutual are ultimately for the benefit of policyholders, and there are no shareholders, then the technical account is always controlled to be zero. The technical and non-technical accounts are just methods of reporting profits, they don't actually matter for tax. If you remember from the company taxation chapters, mutual company business is split into BLAGAB and GRB, each being taxed separately. So no, having a technical account balance of zero does not mean no tax. And also, there is no NCI test because it's a mutual, if that's what you meant by "minimum profit tax".
These are very good comments by cjno. I digress a little bit but just to elaborate on the part "are just methods of reporting profits, they don't actually matter for tax" What is sometimes slightly confusing is - individual taxation, which most people are familiar with, is different to corporate taxation. In that; For individuals (UK in general) you pay tax on what you've earned, subject to various small allowances. Your salary is "profit" sort of (ignoring freelance etc). For corporations (including all insurers) profits reported, e.g. in published accounts, is usually materially different from the profits that are taxable. The reported profits will be prepared in accordance with accounting standards of some sort and would usually contain many areas (particularly on expenses) that goes against the spirit of the "Tax Man's" taxation rules - that is to say in calculating corporation tax liability the reported profits will have to be restated to be consistent with HMRC's rules. So reported profit pretty much "doesn't matter" as cjno1 clearly mentions. This underlies the "BLAGAB", "OLTB", LAPT and other special rules/adjustments in computing insurance companies tax liability.
Thanks very much cjno1 your explanations are so clear. Yes I meant NCI when referring it as minimum profit test - they changed the name in 2013 notes...
Thanks very much dok87 for explaining the tax point further. Again such clear explanations I have no more questions on this thank you.
