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?
I am grateful to the hon. Gentleman for setting out the purpose of the clause. I shall not repeat it because I am sure that the Committee has heard enough. The hon. Gentleman merely queries whether the industry is happy with the dates in the clause.
The clause provides insurance companies with a special rule to allow them to postpone the move to a mark-to-market basis for tax purposes until 2002—a strict application law would make them go back to 1998. To be more precise, the previous basis of tax will still be available for periods of accounts that begin before 1 August 2001, which was the date of the announcement of the changes, and end before 31 July 2002.
The clause has been the subject of detailed consultation with the industry, the Association of British Insurers and others; they have expressed no desire to extend the transitional arrangements. The Bill reflects many of the points that they raised about the draft clauses published on 9 August. I hope that the assurances that I have given will persuade the hon. Gentleman to withdraw his amendment.
This was a probing amendment. As I said, my understanding is that the industry is reasonably happy. I also wanted to ensure that the Government were happy, because if a new tax system is being introduced, taxpayers need to be able to deliver. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 64 ordered to stand part of the Bill.
Clauses 65 and 66 ordered to stand part of the Bill.