LAM04010 - Calculating ‘E’ adjusted BLAGAB management expenses: Introduction and overview FA12/S76

FA12/S73 sets out how to calculate ‘I-E profit’ or ‘excess BLAGAB expenses’ for an accounting period. It provides for the adjusted BLAGAB management expenses to be deducted at Step 5, or, if negative, added at Step 5.

The expense deduction is broadly calculated on a similar basis to how the expenses of management of a company with investment business are calculated, but with some specific tailoring for BLAGAB. Underwriting related expenses such as claims are excluded and expenses are restricted to what are more broadly accounts based ‘operational expenses’. Relief for expenses of management is subject to specific exclusions including adjustment for acquisition expenses which are spread over 7 years. These expenses are generally also spread in the accounts but the basis of accounts spreading will vary between companies.

The steps for calculating adjusted BLAGAB management expenses are detailed in S76 and are summarised below and in this diagram. Steps 1-5 are explained in more detail in the sections referred to in the table. An example in LAM04500 shows all of steps 1-5 to calculate ‘adjusted BLAGAB expenses’

Steps in S76 FA12 to calculate adjusted BLAGAB management expenses	Guidance and main features
Step 1 Calculate ordinary BLAGAB management expenses	LAM04020 FA12/S77, S81 and S82 Ordinary BLAGAB management expenses referable to the accounting period: based on GAAP compliant accounts, must be ‘expenses of management’, subject to excluded amounts such as claims, reinsurance premiums, other insurance related items and other insurance related items and other specific exclusions LAM04020
Step 2 Adjust result of step 1 for acquisition expense spreading rules	LAM04110 FA12/S79 spreading of acquisition expenses over 7 years; FA12/S80 meaning of acquisition expenses LAM04100
Step 3 Calculate the amount of any ‘deemed management expenses’	FA12/S78(3) definition of amounts to be treated as if they were management expenses – list includes certain general annuity business annuities , loan relationship surplus deficits carried forward and more. Includes spread acquisition expenses from previous years. LAM04200
Step 4 Calculate the ‘basic amount’: (Step 1 adjusted for step 2) + Step 3 less expenses reversed and BLAGAB trade loss relieved	FA12/S78(4) expenses reversed in the accounting period. LAM04300
	FA12/S78(5) reduces expenses by any BLAGAB trade loss relieved for the accounting period against other trade profits or surrendered as group relief LAM07310
Step 5 Add any amounts carried forward from previous accounting period of excess BLAGAB expenses and minimum profits test amounts	FA12/S73 Step 6 amount of excess BLAGAB expenses added LAM04400 plus any minimum profits test amounts FA212/S93(5)(b) LAM07230