Nature of insurance premium adjustment repayments

The Medical Defence Union (MDU) provided benefits to its members who worked in the medical profession. Services included arranging insurance cover for members against the risk of professional negligence claims.

Because of its large membership the organisation could negotiate favourable terms with insurance companies including an arrangement under which later years premiums could be reduced or rebated if earlier years claims were lower than expected. Refunded amounts were added to the mutual fund for the benefit of members. It was the premium element adjustment (PEA) arising under that arrangement that was in dispute. HMRC said it was a taxable receipt of the taxpayer. The MDU disagreed saying it was in effect a refund derived from member subscriptions.

The First-tier Tribunal concluded the payment was made by the insurer to the taxpayer and was therefore taxable. The taxpayer appealed.

The Upper Tribunal concluded the payments represented an adjustment to...