LAM02060 - I-E overview: calculating I-E profit: the 6 steps in FA12/S73
The charge to corporation tax applies to the I-E profit of the basic life assurance and general annuity business of an insurance company FA12/S68(1). FA12/S73 provides the mechanism to determine the amount of profit or expense for a given accounting period, referred to as the “I-E profit” or “excess BLAGAB expenses”. The calculation involves 6 steps. These are summarised below with cross references to the relevant sections for more detail.
S73 Step | Guidance |
|---|---|
Step 1 - Identify income referable to BLAGAB | LAM03020: FA12/S74 definition of income LAM05000: allocation of income referable to BLAGAB |
Step 2 - Calculate/identify net chargeable gains referable to BLAGAB | LAM03200: FA12/S75 total long-term business chargeable gains: offset of allowable losses. LAM05100: apportionment of gains referable to BLAGAB |
Step 3 - Identify additional ‘deemed’ I-E receipts and any minimum profits charge | LAM03500: FA12/S92 - certain receipts included in the calculation of BLAGAB trade profits but not already included at steps 1 or 2. LAM03310: FA12/S93-94 I-E adjustment for minimum profits test |
Step 4 - Add results steps 1-3, deduct any non-trading deficit - result is ‘I’ (up to nil) | LAM03060: CTA09/S388 loan relationship and derivative contracts deficit of the deficit period referable to BLAGAB. Allocation to BLAGAB |
Step 5 - Calculate Adjusted BLAGAB management expenses ‘E’ | LAM04010: FA12/S76 steps to calculate adjusted BLAGAB expenses; see FA12/S77-85 for definitions, acquisition expenses, restrictions on deductions, general annuity payments |
Step 6 - Deduct ‘E’ in step 5 from ‘I’ in step 4 | Step 6 result is positive = ‘I-E profit’. FA12/S68 I-E profit charged to tax. Step 6 result is negative = ‘Excess BLAGAB expense’. Excess BLAGAB expenses to be carried forward as an expense to the next accounting period and included in step 5 of S76 LAM04400 |