LAM15210 | Excess expenses, losses and deficits: Insurer carrying on BLAGAB business - calculating the maximum set-off of carried forward losses against total profits

This section sets out how to calculate the cap on the set-off of carried forward losses against total profits for an insurer carrying on BLAGAB. These rules apply after 5 July 2018. LAM15400 deals with the calculation for the period between 1 April 2017 and 5 July 2018.

Carried forward BLAGAB trade losses are a relevant deduction under CTA10/S269ZD(3) but they must be set as far as possible against BLAGAB trade profits FA12/S124A/S124C (6) before they can be set-off against total profits (FA12/S124B(3), surrendered as group relief (CTA10/S188BB) or carried forward to a subsequent period FA12/S124A(2), FA12 /S124C(3).

The maximum amount of relief the company can obtain for its relevant deductions i.e. losses carried forward for deduction from total profits (see CTM05020) is calculated in a series of steps:

1. Calculate the modified total profits

The modified total profits for an insurer carrying on BLAGAB (step 1 CTA10/S269ZF(3) as modified by CTA10/S269ZFB) are the total taxable profits of the period before deducting any in year reliefs or carried forward reliefs, calculated in accordance with step 1 of CTA10/S4(2), modified to exclude:

• taxable distributions (CTA09/PART9A)

• the policyholders’ share of I-E profits (CTA10/S269ZFB modifies CTA10/269ZF4(d))

Where exceptionally there are trade losses carried forward that are shock losses (LAM15300) these are deducted when calculating modified total profits.

The adjustment for taxable distributions refers only to those distributions which are taxable by virtue of CTA09/PART9A and not to distributions which form part of the computation of non-BLAGAB.

1. Calculate the company’s relevant profits

The company’s relevant profits for the accounting period are:-

• The modified total profits, less

• In-year reliefs calculated under step 2 of CTA10/S269ZF(3) (see CTM05060) less

• the amount of the company’s deductions allowance for the accounting period.

1. Calculate the relevant maximum

The relevant maximum is the sum of:

• 50% of the company’s relevant profits for the accounting period and

• the amount of the company’s deductions allowance for the accounting period.

1. Calculate the maximum amount of relief available for its relevant deductions

The maximum amount of relief available for its relevant deductions is:

• The relevant maximum {#},

Less the sum of:

• Any deductions made for restricted streamed carried-forward trading losses under CTA10/S45(4)(b) or S45B and

• Any deductions made for restricted streamed non-trade loan relationship deficits under CTA09/S457(3) or S463H(5)

Example

For the accounting period 1 January 2020 to 31 December 2020 the table below sets out the profits and losses for the company and steps in the calculation of the maximum set-off of carried forward losses against total profits. A valid claim is made to set BLAGAB trade losses carried forward against total profits.

Notes

1 The set-off of post 1/1/2017 BLAGAB trade losses against BLAGAB trade profits is mandatory FA12/S124A.

2. The set-off of pre-1/4/2017 non -BLAGAB trade losses is not mandatory CTA10/S45(4A)

3. In this example only post 1/4/2017 BLAGAB trade losses are available to set off against total profits. Subject to the maximum the company can choose the amount it wishes to set-off. If other relevant deductions were available the company could also choose the order of set-off.

Carried forward BLAGAB trade losses of 132.5 can be set against total profits. There will be a consequential reduction in BLAGAB management expenses FA12/S78(5) equal to the amount set-off that would increase the I-E profits.