Clause 64 - Postponement of change to mark-to-market in certain cases
Finance Bill
5:30 pm
Mr Howard Flight (Arundel and South Downs, Conservative)
I beg to move amendment No. 112, page 41, line 43, leave out '2002' and insert '2003'.
The amendment is probing and asks whether the Government are satisfied from their discussion with the industry that their proposed starting date will work satisfactorily. The clause gives help to insurance companies required to move to a mark-to-market basis in relation to the profits and losses arising on their portfolio investments. For accounting periods ending on or after 31 December 1998, insurance companies have been required to account for the portfolio investments on a mark-to-market basis—that is, investments are recognised in the accounts on their market value, which is duly adjusted at each year end.
To use a mark-to-market basis leads to companies recognising unrealised gains and losses, which are taxable as they arise. Some insurance companies have continued to use the realisation method for tax purposes—that is, they have taxed gains and losses only when they are realised. For companies that organise their accounts based on the calendar year, the first point at which they are required to pay tax on a mark-to-market basis is 1 January 2002.
The industry feels that the arrangements are broadly satisfactory, and does not criticise or challenge them. However, there are outstanding discussions with the Revenue, and some concerns exist that the interaction between clause 83, and schedules 22 and 30, and clause 64 might have a problematic impact on insurance companies in due course. We can pursue that issue further when we come to it. Are the Government happy that everyone is geared up to cope with a starting date at the beginning of this year?