SolvedLAM04120 | Calculating ‘E’ adjusted BLAGAB management expenses: Step 2: Example - spreading of acquisition expenses: FA12/S79
From HM Revenue & Customs · Life Assurance Manual
A life insurance company began trading on 1 July 2013 and has an accounting date of 31 December.
It incurred acquisition expenses of £28,000 in 2013, £42,000 in 2014, and £63,000 in 2015.
Step 3 Deemed BLAGAB management expenses and total acquisition expenses deducted for the accounting period will be as follows:
| Acc’ing Period | Adjusted acquisition costs £ | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
|---|---|---|---|---|---|---|---|---|---|
| 2013 | 28,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | |
| 2014 | 42,000 | 6,000 | 6,000 | 6,000 | 6,000 | 6,000 | 6,000 | 6,000 | |
| 2015 | 63,000 | 9,000 | 9,000 | 9,000 | 9,000 | 9,000 | 9,000 | ||
| Deemed M.E | 4,000 | 10,000 | 19,000 | 19,000 | 19,000 | 19,000 | 15,000 | ||
| M.E | 4,000 | 6,000 | 9,000 | - | - | - | - | ||
| Total Acqu Exp | 4,000 | 10,000 | 19,000 | 19,000 | 19,000 | 19,000 | 19,000 | 15,000 |
In 2013 the company includes acquisition expenses of £28,000 in its ordinary BLAGAB management expenses at Step 1. At Step 2 it deducts 6/7 ths of £28,000 = £24,000 (even though the AP is only 6 months long, relief is not restricted on a pro rata basis, because this is the first AP, that is the AP in which the expenses were incurred. Acquisition expenses of £4,000 are relieved.
The balance of the acquisition expenses are relieved as deemed BLAGAB management expenses in future APs.
In 2014 the company includes the acquisition expenses of £42,000 for that AP in its ordinary BLAGAB management expenses at Step 1. At Step 2 it deducts 6/7 ths of £42,000 = £36,000. Net relief is therefore £6,000.
The balance of the acquisition expenses is relieved as deemed BLAGAB management expenses in future APs.
In 2015 the company includes acquisition expenses of £63,000 for the AP in its ordinary BLAGAB management expenses at Step 1. At Step 2 it deducts 6/7ths of £63,000 = £54,000. The company receives net relief of £9,000 for the acquisition expenses of the AP.
Deemed BLAGAB management expenses represent the acquisition expenses of earlier APs relieved in the AP. For 2015 these are £4,000 (2013) + £6,000 (2014) = £10,000. The deemed BLAGAB management expenses brought in at Step 3 are thus £10,000.