LAM03510 - Calculation of ‘I’ Income and chargeable gains: FA12/S73 Step 3: minimum profits test FA12/S93 and S94 adjustments

The second part of the FA12/S73 step 3 calculation is the application of the minimum profits test. The purpose of the minimum profits test is to ensure that the taxable income of an insurance company under the I-E system is not lower than the BLAGAB trade profit for the period. The test identifies whether there is an I-E receipt to bring into charge (and a corresponding expense to carry forward to the next accounting period).

The rationale behind the test is that all profit attributable to shareholders must be taxed. If adjusted profits under the I-E basis are lower than BLAGAB trade profits, the minimum profits test will adjust the I-E profit to at least the level of trade profits.

Further background and details of the calculation are set out in the trade profits chapter LAM07230.