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HMRC internal manual

# FA2010: risk transfer schemes: calculating the relevant scheme profits

## Relevant Scheme Profits

Where a company has made scheme profits (CFM63360) as part of a risk transfer scheme, a proportion of those profits will be available for offset by ‘ring-fenced scheme losses’.

The rules for calculating the amount of profit available for offset by ring-fenced scheme losses are at CTA10/S937F and are calculated using the following formula:

 A - B - C A

A = The total of the scheme profits made in the period in relation to the scheme by the members of the relevant group

B = The total of the scheme losses made in the period in relation to the scheme by the members of the relevant group

C= The pre-tax economic profit from the scheme

### Pre-tax economic loss

The ‘pre-tax economic profit’ is the overall economic profit that the group makes, as a whole, by virtue of being party to the scheme, and prior to any tax implications.

### Example

Using the example at CFM63320, and assuming that sterling has appreciated by 10% against yen, we can see how this works:

A = The profit on the yen borrowing (see CFM63360) = £13.9m

B = £0 (there are no losses made on any loan relationship or derivative contract)

C = The overall pre-tax profit made from the scheme - i.e. the profit on the yen borrowing of £13.9m less the loss made on the shareholding of £10m = £3.9m

So, the relevant proportion of the ‘scheme profit’ that is a ‘relevant scheme profit’ is (£13.9m - £0 - £3.9m) / £13.9m = 71.2%.

As the ‘scheme profit’ was £13.9m, the ‘relevant scheme profit’ is 72% of £13.9m = £10m