SPECIAL ACCOUNTING SCHEMES (Hansard, 20 April 1994)

§ Sir John Cope
I beg to move amendment No. 38, in page 52, line 9, at end insert— `( ) The reference in subsection (3)(a) above to a premium under a taxable insurance contract includes a reference to anything that, although not actually received by or on behalf of the insurer, would be such a premium if it were so received.'. Those hon. Members who served on the Committee and those people who have read the Committee proceedings will recall that we have introduced an arrangement for a special accounting scheme which allows the insurance premium tax to be accounted for when the premium is written rather than when the premium is received by the insurer or by an agent on his behalf. The amendment enables the date of the writing of a premium to be the tax point if that happens before the premium is received.
In the explanation that I gave in Committee of what was then new clause 15, about the advantages and disadvantages to an insurance company of having a premium written arrangement, that was assumed, but the amendment confirms that it will be possible for the regulations to make such an arrangement. It would be confusing to an insurance company to have a written premium or cash, whichever was the later, in the case of a specific transaction. It is obviously better for the company to go wholly on to the written premium basis from every point of view. Without the amendment, that might not be possible. It clears up a doubt.

§ Mr. Darling
This is technical stuff, but it is important. I understand the Paymaster General's argument. Of course all members of the Committee welcomed the Government's agreement to allow the tax to be discharged on the basis of the date on which premiums were written.
However, if I read amendment No. 38 correctly, it could also cover a situation in which tax would be payable whether or not the premium was ever received. I simply want to check with the Paymaster General whether that is intended. As I understand it, the tax point is the date on which the premium is written, but the phrasing of the amendment suggests that if the premium is written but no cash is ever received, none the less tax would be payable on the unpaid premium. Am I right in assuming that?

§ Sir John Cope
No; I am glad to be able to reassure the hon. Gentleman. If tax is accounted for on a premium written basis and premium is not received by the insurer or on his behalf, the insurer can claim credit for the tax when he makes the adjusting entry to cancel the premium from his books, and it then comes off his insurance premium tax, 899 for that accounting period. It may be a later accounting period; in some cases it will be in the same accounting period; but he does not eventually suffer the tax.

§ Mr. Darling
Just to be sure, it means that the tax is payable at the tax point, if at a later stage, rather similar to the case in which VAT is not recovered—a credit can then be claimed by the company if it turns out that it has to write off the premium.

§ Sir John Cope
That is correct.