LAM03500 - Calculation of ‘I’ Income and chargeable gains: FA12/S73 Step 3: Calculate deemed ‘I-E’ receipts FA12/S92

Certain BLAGAB trading receipts count as deemed I-E receipts and must be included in step 3 of the I-E profit calculation. These are receipts that are taken into account in calculating a BLAGAB trade profit or loss, but are not brought into the charge to corporation tax elsewhere and are not ‘excluded receipts’.

The following are excluded receipts:

• premiums
• sums received under reinsurance contracts where substantially all of the insurance risks relating to the contracts are reinsured
• sums received under reinsurance contracts unless they are reinsurance commissions, or sums calculated by reference to the ordinary BLAGAB management expenses (as defined by FA12/S77) and are not already excluded by bullet 2 above
• sums which do not fall within the charge to corporation tax because of an exemption (e.g. non-taxable distributions)
• payments received under the Financial Services Compensation Scheme
• payments received from other insurance companies to enable the company to meet its obligations to policyholders

Examples of deemed I-E receipts, i.e. items that fall to be taxed under this rule, include reinsurance commissions, contributions to expenses, underwriting commissions and unit trust rebates. A research and development expenditure credit is treated as a deemed I-E receipt under CTA09/104V(3). This is also the case for mutuals and friendly societies.

The appropriate amount of receipts to be included at step 3 of the I-E basis calculation is calculated by deducting expenses from the receipts so far as is necessary to calculate the full amount of the profits.