Annex 1: Minor Changes in the Law Change 58: Loan relationships: deficits on loan relationships referable to basic life assurance and general annuity business: change in basic rule so that deficit set off against income and gains of deficit period instead of being carried forward: section 388
This changes the default rule for setting off deficits on loan relationships referable to basic life assurance and general annuity business so that such deficits are set off against income and gains of the deficit period instead of being carried forward and treated as expenses in later accounting periods.
Under paragraph 4(4) of Schedule 11 to FA 1996, if a claim is not made under either paragraph 4(2) to set off the deficit against income and gains in the deficit period, or paragraph 4(3) to carry the deficit back and set it off against eligible profits in earlier accounting periods, then the deficit is carried forward to the next accounting period. No claim is required to carry the deficit forward.
This change secures that no claim is required to set off the deficit against income and gains within the deficit period. If a deficit remains after setting off the deficit against eligible income in the deficit period, the excess is carried forward without a claim unless a claim is made to carry it back. (A claim is still required if the company wants to carry the deficit back to earlier accounting periods.)
This change will not alter the amount charged to tax. The most it will do is affect the timing of the tax liability. In a small minority of cases this could mean a different rate of tax being applied, according to individual circumstances. Any overall tax effect is likely to be negligible.