LAM04040 | Calculating ‘E’ adjusted BLAGAB management expenses: Step 1: Restrictions on unpaid remuneration, car hire and FOTRA related expenses: FA12/S82 and FA12/S96

FA12/S82 restricts the extent to which certain expenses which would otherwise be regarded as ordinary BLAGAB management expenses may be so treated for the purposes of FA12/S76. The restriction is in line with that applying to companies more broadly on unpaid remuneration and expenses incurred in hiring a car.

Unpaid remuneration FA12/S82(2): CTA09/S1249-50

FA12/S82(2) – (3) applies the rules in CTA09/S1249-50 relating to unpaid remuneration to life insurance companies BLAGAB expenses, subject to any spreading required in FA12/S79. Any remuneration charged in the accounts of a company for a period of account but not paid within 9 months of the end of the period of account is not admissible as an expense for that period of account for tax purposes. Instead it is treated as an expense of the period of account in which it is paid. If it is not paid it does not qualify as an expense.

Car hire FA12/S82(4) : CTA09/S1251(1)

CTA09/S1251 restricts by 15% the deduction an investment company can claim for expenses incurred on hiring a car in specific circumstances. The same restrictions are applied in the case of BLAGAB management expenses FA12/S82(4).

If there is a subsequent rebate of those charges and an amount would fall to be deducted as a reversed expense or taken into account in calculating an I-E receipt under FA12/S92, the amount deductible or taken into account is also reduced by 15%. The same rule applies if a debt in respect of the hire charges is released otherwise than as part of a statutory insolvency arrangement.

Restriction of expenses referable to exempt FOTRA profits FA12/S96: CTA09/S1279

FA12/S96 restricts ordinary BLAGAB management expenses for overseas life insurance companies to exclude any amounts relating to exempt FOTRA profits (CTA09/S1279).

CTA09/S1279 exempts from corporation tax profits from FOTRA (free of tax to residents abroad) securities. Since they are not taxable as BLAGAB profits, it is appropriate that relief should not be given for related expenses in calculating BLAGAB management expenses. BLAGAB expenses are thus restricted in accordance with FA12/S96. The proportion of ordinary BLAGAB management expenses referable to exempt FOTRA profits is ignored in the calculation required by Step 1 of the FA12/S76 calculation. That proportion is computed by multiplying the ordinary BLAGAB management expenses for the accounting period by the following fraction:

the amount of exempt FOTRA profits

the amount of I computed at Step 4 of FA12/S73 plus the amount of exempt FOTRA profits.

The proportion of the management expenses that is effectively disallowed is calculated by applying a formula:

FOTRA/(FOTRA + I)

Where ‘FOTRA’ is the amount of exempt FOTRA profits of the accounting period and ‘I’ is the BLAGAB income and gains generated at Step 4 (FA12/S73, LAM03010).