LAM04030 - Calculating ‘E’ adjusted BLAGAB management expenses: Step 1: Amounts treated as ordinary BLAGAB management expenses: FA12/S81

Calculating ‘E’ adjusted BLAGAB management expenses: Step 1: Amounts treated as ordinary BLAGAB management expenses: FA12/S81

FA12/S81 brings within ordinary BLAGAB management expenses certain expenses which would not otherwise be regarded as such. They must still meet the first two basic conditions set out in FA12/S77(2) (see LAM04020), broadly being expenses of management debited in accordance with generally accepted accounting practice, which are referable to BLAGAB.

Several provisions of CTA09 which treat particular expenses as expenses of management in the case of companies with investment business are adopted as “relevant permissive rules”. These expenses can then be treated as ordinary BLAGAB management expenses for the purposes of FA12/S76. These all relate to expenses which are deductible expenses for companies generally.

The relevant CTA09 provisions are as listed in FA12/S81(3) are:

  • S1000 (costs of setting up employee share ownership trust
  • S1234 (payments for restrictive undertakings)
  • S1235 (employees seconded to charities and educational establishments)
  • S1237 (counselling and other outplacement expenses)
  • S1238(1) to (3) (retraining courses)
  • S1239 to S1242 (redundancy payments and approved contractual payments), subject to a restriction where additional redundancy payments are regarded as FA12/S79 acquisition expenses (FA12/S81(5))
  • S1243 (payments made by the Government)
  • S1244 (contributions to local enterprise organisations or urban regeneration companies), subject to CT009/S1253 disqualifying benefit adjustment

Life assurance company qualifying land remediation expenditure (CTA09/S116-1168)

Expenses in connection with contaminated or derelict land CTA09/S1161-2

Land remediation relief (CIRD60000) was introduced to address market failure, in bringing back into use, land that had been blighted by previous use for industrial purposes. CTA09/S1161/62 applies this relief to life insurance companies carrying on BLAGAB.

Where a company incurs qualifying land remediation expenditure (CTA09/S1144) in respect of a major interest in UK land it uses for management of BLAGAB business, or it intended for such use, the expenses can be treated as ordinary BLAGAB management expenses for the period.

The land must be acquired in a contaminated state or be in a derelict state throughout the period from acquisition, or 1 April 1998 if earlier.

CTA09/S1162 provides additional relief as a deemed BLAGAB management expense in an amount equal to 50% of the BLAGAB management expenses relating to the qualifying land remediation expenditure, following a claim by the company.

No relief is available under CTA09/S1161 or S1162 in respect of expenditure on land which is in a contaminated state as a result of anything done, or not done, by the company, or a connected person, or land in a contaminated or derelict state as a result of anything done, or not done, by another person who has an interest in the land.

If a company makes a claim for relief under CTA09/S1161 or S1162 and has excess BLAGAB expenses available to carry forward, then it may have a ‘qualifying BLAGAB loss’ in an accounting period. The company may be able to claim a BLAGAB tax credit, also known as a life assurance company tax credit. This is the equivalent of land remediation tax credit that can be claimed by other companies. The company must make a claim in its tax return.

The amount of the ‘qualifying BLAGAB loss’ is the lesser of:

  1. 150% of the BLAGAB qualifying land remediation expenditure for that period, or
  2. The excess BLAGAB expense available to carry forward to a subsequent accounting period, but ignoring any amounts taken into account in the I-E calculation of brought forward:
  • expenses as a result of the previous application of the I-E calculation or minimum profits test, or
  • loan relationship deficits treated as expenses under CTA09/S391.

The amount of BLAGAB credit a company can claim is 16% of the amount of ‘qualifying BLAGAB loss’ for the accounting period (CTA09/S1166).

Payment or set-off of the BLAGAB tax credit works in the same way as for the land remediation tax credit (CTA09/S1167).

Under CTA09/S1168, the amount of the qualifying BLAGAB loss, which has been surrendered for the 16% BLAGAB tax credit, is deducted from the amount:

  • carried forward as excess BLAGAB expense, and
  • brought into account at Step 5 of the adjusted BLAGAB management expense calculation at FA12/S76.