activity in the United Kingdom through a permanent establishment
there, or

(c) the person qualifies for authorisation under Schedule 4 to FISMA 2000
(Treaty rights) and carries on that activity in the United Kingdom
through a permanent establishment there.

(3) 5The above definition is subject to the following qualifications—

(a) a friendly society within the meaning of Part

3

is not an insurance
company, and

(b) 10an insurance special purpose vehicle (see section 139) is an insurance
company only if, in addition to falling within subsection (2)(a), (b) or
(c), it is a BLAGAB group re-insurer.

(4) A person is a “BLAGAB group re-insurer” if for an accounting period—

(a) the person carries on basic life assurance and general annuity business,

(b) 15it is not the case that substantially all of the person’s long-term business
is long-term business other than basic life assurance and general
annuity business, and

(c) all of its life assurance business is re-insurance business of a description
which is excluded business for the purposes of section 57(2)(e).

CHAPTER 2 20Charge to tax on I - E basis etc

Separate businesses etc

66 Separate businesses for BLAGAB and other long-term business

(1) If an insurance company carries on—

(a) basic life assurance and general annuity business, and

(b) 25other long-term business,

the general rule is that business within paragraphs (a) and (b) is to be treated
for corporation tax purposes as two separate businesses carried on by the
company.

(2) One of the separate businesses is to consist of the basic life assurance and
30general annuity business.

(3) The other separate business is to be regarded for corporation tax purposes as a
single trade consisting of the other long-term business.

(4) If an insurance company carries on—

(a) life assurance business none of which is basic life assurance and general
35annuity business, and

(b) PHI business,

the company is to be treated for corporation tax purposes as carrying on a
single trade consisting of the businesses within paragraphs (a) and (b).

(5) For the purposes of this Part “non-BLAGAB long-term business” means—

(a) 40a single trade within subsection (3) or (4), or

(b) in a case where an insurance company carries on life assurance business
none of which is basic life assurance and general annuity business but
does not carry on other long-term business, that life assurance business.

(6) If an insurance company carries on short-term insurance business, that
business is to be regarded for corporation tax purposes as a separate trade.

(7) For this purpose “short-term insurance business” means any insurance
business which is not long-term business.

67 5Exception where BLAGAB small part of long-term business

(1) There is an exception to the general rule set out in section 66(1) if for an
accounting period of an insurance company substantially all of its long-term
business is not basic life assurance and general annuity business.

(2) In that case, there is for the accounting period to be no separate business
10consisting of the company’s basic life assurance and general annuity business.

(3) There is instead to be one business that is to be regarded for corporation tax
purposes as a single trade of the company consisting of its long-term business.

(4) That single trade is to be regarded as “non-BLAGAB long-term business” for
the purposes of this Part.

(5) 15Accordingly, references in this Part (apart from in section 66 and this section)
to a company’s basic life assurance and general annuity business do not
include any business which, as a result of this section, is regarded as non-
BLAGAB long-term business.

BLAGAB taxed on I - E basis

68 20Charge to tax on I - E profit

(1) The charge to corporation tax applies to the I - E profit of the basic life
assurance and general annuity business carried on by an insurance company.

(2) For the meaning of “I - E profit”, see section 73.

69 Exclusion of charge under s.35 of CTA 2009 etc

25The charge to corporation tax under section 68 has effect instead of—

(a) the charge to corporation tax on income under section 35 of CTA 2009
(charge to tax on trade profits),

(b) any other charge to corporation tax on income under any other
provision of the Corporation Tax Acts that would otherwise have
30applied, and

(c) the charge to corporation tax on chargeable gains so far as referable, in
accordance with Chapter

4

, to the company’s basic life assurance and
35general annuity business.

70 Rules for calculating I - E profit or excess BLAGAB expenses

(1) The rules set out in Chapter

3

determine whether for an accounting period an
40insurance company carrying on basic life assurance and general annuity
business has an I - E profit or excess BLAGAB expenses (and, if so, the amount
of the profit or expenses).

(2) Those rules are referred to in this Part as “the I - E rules”.

(3) The calculation of the I - E profit or excess BLAGAB expenses is to operate by
reference to the amounts that are credited or debited in the accounts of the
company for a period of account drawn up in accordance with generally
accepted accounting practice.

(4) 5But, in the case of amounts of a particular description, that is subject to any
provision which (whether expressly or by implication) provides for that
calculation to operate by reference to something else.

(5) For the meaning of “excess BLAGAB expenses”, see section 73.

Non-BLAGAB long-term business

71 10Charge to tax on profits of non-BLAGAB long-term business

(1) The charge to corporation tax on income under section 35 of CTA 2009 (charge
to tax on trade profits) applies to the profits of non-BLAGAB long-term
business carried on by an insurance company.

(2) The rules for calculating those profits are subject to the provision made by—

(a) 15Chapter

6

(trade calculation rules applying to long-term business),

(b) Chapter

7

20 (trading apportionment rules), and

(c) section 131 (transfers of business).

(3) Subsection (1) does not apply if the business is mutual business, and in that
case no other provision of the Corporation Tax Acts has effect to charge the
income of the business to corporation tax.

25PHI only business

72 Companies carrying on only PHI business

Nothing in—

(a) this Part, or

(b) any other provision of the Corporation Tax Acts that makes special
30provision in relation to, or by reference to, long-term business carried
on by insurance companies,

is to apply in relation to a company which carries on long-term business which
consists wholly of PHI business.

CHAPTER 3 The I - E basis

35Introduction

73 The I - E basis

This section sets out rules, in relation to the basic life assurance and general
annuity business carried on by an insurance company, for determining
whether the company has an I - E profit or excess BLAGAB expenses for an
40accounting period (and, if so, the amount of the profit or expenses).

Step 1

Calculate the income chargeable for the accounting period that is referable, in
accordance with Chapter

4

5, to the company’s basic life assurance and general
annuity business.

The meaning here of “income” is given by section 74.

Step 2

Calculate the BLAGAB chargeable gains of the company for the accounting
10period as adjusted for allowable losses (see section 75).

Step 3

Calculate so much of the amount (or the total amount) of any I - E receipt under
section 92 or 93(5)(a) as is not taken into account in the calculation required by
step 1 or 2.

15Step 4

Add together the amounts given by the calculations required by steps 1 to 3.

Reduce the total of those amounts (but not below nil) by the amount of any
non-trading deficit which the company has for the accounting period under
section 388 of CTA 2009 (loan relationships and derivative contracts).

20The result is “I”.

Step 5

Calculate the adjusted BLAGAB management expenses of the company for the
accounting period (see section 76).

The result is “E”.

25Step 6

Subtract E from I (which, if E is a negative figure, would have the effect of
increasing the result of the calculation).

If the result is a positive amount, that is (subject to section 95) the amount for
the accounting period chargeable to corporation tax under section 68.

30That amount is referred to in this Part as an “I - E profit”.

If the result is a negative amount, that amount is to be carried forward by the
company as an expense to its next accounting period to be used in accordance
with step 5 of section 76.

Definitions of expressions comprising “I”

74 35Meaning of “income”

(1) In section 73 “income”, in relation to an insurance company, means the
following income or credits so far as arising from the company’s long-term
business—

(a) income of the company chargeable under Chapter 3 of Part 4 of CTA
402009 in respect of any separate UK property business or overseas
property business within section 86(4),

(b) credits in respect of any loan relationships of the company,

(c) credits in respect of any derivative contracts of the company,

(d) credits brought into account by the company under Part 8 of CTA 2009
(intangible fixed assets),

(e) 5income of the company chargeable under Part 9A of CTA 2009
(company distributions),

(f) income of the company chargeable under Chapter 5 of Part 10 of CTA
2009 (distributions from unauthorised unit trusts),

(g) income of the company chargeable under Chapter 6 of Part 10 of CTA
102009 (sale of foreign dividend coupons),

(h) income of the company chargeable under Chapter 7 of Part 10 of CTA
2009 (annual payments not otherwise charged),

(i) income of the company arising from a source outside the United
Kingdom which is chargeable under Chapter 8 of Part 10 of CTA 2009
15(income not otherwise charged), and

(j) income of the company chargeable under any provision to which
section 1173 of CTA 2010 (miscellaneous charges) applies other than
section 752 of CTA 2009 (non-trading gains on intangible fixed assets).

(2) The reference in subsection (1)(a) to income chargeable under Chapter 3 of Part
204 of CTA 2009 includes income chargeable under that Chapter in respect of
distributions treated by section 548(5) of CTA 2010 as profits of a UK property
business carried on by the company.

(3) References in subsection (1)(b) to (d) to credits need to be read with section
88(3) and (4).

(4) 25The reference in subsection (1)(j) to income chargeable as mentioned there
needs to be read with section 89(1).

(5) For the purposes of this section references to income or credits that are
chargeable or brought into account under any provision are to income or
credits that, but for sections 68 and 69, would be chargeable or brought into
30account under that provision.

(6) For the purposes of this section no account is to be taken of income which arises
from an asset forming part of the long-term business fixed capital of the
company (see section 137).

75 Meaning of “BLAGAB chargeable gains” etc

(1) 35This section explains for the purposes of section 73 how to calculate the
BLAGAB chargeable gains of the company for the accounting period as
adjusted for allowable losses.

Step 1

First, calculate the chargeable gains—

• 40that accrue to the company in the accounting period from the disposal
  of assets held for the purposes of the company’s long-term business,
  and

• that are referable, in accordance with Chapter

  4

  45, to its basic life
  assurance and general annuity business.

Step 2

Then, deduct from the amount of those gains—

• any allowable losses that accrue to the company in the accounting
  period from the disposal of assets held for the purposes of the
  company’s long-term business and that are so referable, and

• 5so far as not previously deducted from any chargeable gains, any
  allowable losses that accrued to the company in a previous accounting
  period from the disposal of assets held for the purposes of the
  company’s long-term business and that were so referable.

The resulting amount is the amount of the BLAGAB chargeable gains of the
10company for the accounting period as adjusted for allowable losses.

(2) The deduction at step 2 may reduce an amount to nil but no further.

(3) For the purposes of this section no account is to be taken of a chargeable gain
or allowable loss accruing to the company on a disposal for the purposes of
TCGA 1992 of an asset that forms part of the long-term business fixed capital
15of the company.

(4) References in this section to chargeable gains or allowable losses are references
to those gains or losses as calculated in accordance with the rules contained in
TCGA 1992.

Definitions of expressions comprising “E”

76 20Meaning of “adjusted BLAGAB management expenses”

This section explains for the purposes of section 73 how to calculate the
adjusted BLAGAB management expenses of the company for the accounting
period.

Step 1

25Calculate the ordinary BLAGAB management expenses of the company
referable to the accounting period (see sections 77, 81 and 82).

In making the calculation ignore so much of those expenses as is deductible
under other relevant rules (see section 78(2)).

If the company is an overseas life insurance company, see also section 96.

30Step 2

If the expenses calculated in accordance with step 1 include acquisition
expenses for the purposes of section 79, reduce the amount given by step 1 in
accordance with the rules in that section (which, in the typical case, provide for
six-sevenths of the adjusted amount of those expenses to be disallowed for the
35accounting period and relieved instead as deemed BLAGAB management
expenses for the next six accounting periods).

Step 3

Calculate the total amount of any deemed BLAGAB management expenses for
the accounting period (see section 78(3)).

40For this purpose ignore any amounts that have already been included in step 1.

Step 4

Find the basic amount by adding together the amount given by the calculation
required by step 1 (adjusted, where relevant, in accordance with step 2) and the
amount given by the calculation required by step 3.

Adjust the basic amount by deducting from it any expenses reversed in the
5accounting period (see section 78(4)) and any BLAGAB trade loss relieved for
the accounting period (see section 78(5)).

Step 5

Add together any amounts carried forward as expenses from the previous
accounting period to the accounting period as a result of section 73 or 93 to give
10the carried-forward amount.

Add the carried-forward amount to the basic amount or, as the case may be,
the basic amount adjusted in accordance with step 4.

77 Section 76: meaning of “ordinary BLAGAB management expenses” etc

(1) This section explains for the purposes of section 76 what is meant by the
15“ordinary BLAGAB management expenses of the company referable to the
accounting period”.

(2) Amounts are “ordinary BLAGAB management expenses” of the company if—

(a) they are, in accordance with generally accepted accounting practice,
debited in accounts drawn up by the company for a period of account
20(but see subsection (3)),

(b) they are expenses of management of the company’s long-term business
that are referable, in accordance with Chapter

4

, to its basic life
25assurance and general annuity business, and

(c) they are not excluded amounts (see subsections (4) to (7)).

(3) In a case where acquisition expenses (within the meaning of section 80)
incurred in the accounting period fall to be debited in successive accounts
drawn up for successive periods of account, those expenses are treated instead
30as if they were all debited in the accounts drawn up for the first of those periods
of account.

(4) The following are “excluded amounts”—

(a) amounts of a capital nature,

(b) re-insurance premiums,

(c) 35refunds of premiums,

(d) profit commissions and profit participations (however described),

(e) a liability of the company to pay an amount of commission or other
expenses so far as exceeding the amount which it could reasonably be
expected to pay if sections 68 and 69 were not applicable,

(f) 40non-commercial amounts payable by the company,

(g) amounts payable in connection with a policy or contract to a
policyholder or annuitant under the policy or contract or to any other
person entitled to receive benefits under the policy or contract.

(5) For the purposes of subsection (4)(f) expenses or other amounts are “non-
45commercial amounts” payable by the company so far as the company’s
purpose in incurring the liability to make the payment is not a business or other
commercial purpose of the company.

(6) Amounts payable as mentioned in paragraph (g) of subsection (4) include—

(a) amounts payable to any person acting on behalf of a person within that
paragraph, and

(b) amounts payable to the personal representatives of a deceased person
5who was (or acted on behalf of a person who was) within that
paragraph.

(7) Amounts payable as mentioned in subsection (4)(g) do not include amounts
payable to an insurance company which is a policyholder under the policy.

(8) In the case of ordinary BLAGAB management expenses in respect of a period
10of account which coincides with or falls wholly in an accounting period of the
company, all of those expenses are “referable to” the accounting period.

(9) In the case of ordinary BLAGAB management expenses in respect of any other
period of account—

(a) those expenses are to be apportioned to the accounting period of the
15company in accordance with section 1172 of CTA 2010, and

(b) the apportioned amount of those expenses is “referable to” the
accounting period.

78 Section 76: meaning of other expressions

(1) This section explains for the purposes of section 76 what is meant by—

• 20“other relevant rules”,

• “deemed BLAGAB management expenses for the accounting period”,

• “expenses reversed in the accounting period”, and

• “BLAGAB trade loss relieved for the accounting period”.

(2) An expense is deductible under another “relevant rule” if—

(a) 25it is deductible as a result of section 92(3),

(b) it is deductible in calculating, for corporation tax purposes, the profits
of a property business, or

(c) it is deductible as a result of section 272 of CTA 2009 in calculating
income from the letting of rights to work minerals in the United
30Kingdom.

(3) An amount is a “deemed BLAGAB management expense for the accounting
period” if it is treated as such for the purposes of section 76 as a result of—

• section 79 or paragraph 33(2) of Schedule 17 (spreading of acquisition
  expenses),

• 35section 83 (general annuity business),

• section 87(3) (losses from property businesses where land held for
  purposes of long-term business),

• section 88(6) (excess of debits in respect of intangible fixed assets),

• section 89(2) (excess of miscellaneous losses),

• 40paragraph 16(1) of Schedule 7 to FA 1991 (transitional relief for old
  general annuity contracts),

• section 256(2)(a) of CAA 2001 (allowances in respect of plant or machinery
  consisting of management asset),

• section 391(3) of CTA 2009 (loan relationships: carry forward of surplus to
  45next accounting period),

Finance BillPage 48

• section 1080(2) of CTA 2009 (additional relief for expenditure on research
  and development),

• section 1162 of CTA 2009 (additional relief for remediation of
  contaminated or derelict land), or

• 5section 783(6), 785(4) or 791(6) of CTA 2010 (manufactured dividends).

(4) “Expenses reversed in the accounting period” means the total amount of the
expenses—

(a) which were relieved in any previous accounting period in accordance
with step 1 (as read with step 2) or step 3 of section 76, but

(b) 10which are subsequently reversed in the accounting period.

(5) A “BLAGAB trade loss relieved for the accounting period” means so much of
a BLAGAB trade loss of the company for the accounting period for which relief
is given under—

(a) section 37 of CTA 2010 (relief for trade losses against total income), as
15applied by section 123, or

(b) Chapter 4 of Part 5 of that Act (group relief), as applied by section 125.

79 Spreading of acquisition expenses

(1) This section applies if the ordinary BLAGAB management expenses of an
insurance company referable to an accounting period for the purposes of
20section 76 include acquisition expenses (as defined by section 80) incurred in
the accounting period.

(2) In the case of the acquisition expenses—

(a) a reduction is to be made at step 2 in section 76 so as to secure that only
one-seventh of the adjusted amount of those expenses counts as
25ordinary BLAGAB management expenses of the company referable to
the accounting period, and

(b) the remainder of that adjusted amount is to be relieved as deemed
BLAGAB management expenses for succeeding accounting periods in
accordance with the following provisions.

(3) 30References in this section to the adjusted amount of the acquisition expenses
are to—

(a) the amount of those expenses calculated as mentioned in step 1 of
section 76 (and see, in particular, section 77(3)), less

(b) any amount of re-insurance commission or any repayment or refund
35(in whole or in part) that forms part of an I - E receipt of the company
for the accounting period as a result of section 92.

(4) The remainder of the adjusted amount of the acquisition expenses is relieved
as follows.

(5) One-seventh of the adjusted amount of the acquisition expenses is treated for
40the purposes of section 76 as a deemed BLAGAB management expense for
each succeeding accounting period.

(6) But, if a succeeding accounting period is less than a year, the fraction of that
amount to be relieved for that period is proportionately reduced.

(7) The reliefs operate until the whole of the adjusted amount of the acquisition
45expenses has been used up (and, accordingly, the rules in subsections (5) and
(6) have effect subject to this subsection).

(8) The treatment of any part of the adjusted amount of the acquisition expenses
as a deemed BLAGAB management expense for an accounting period (“the
period concerned”) as set out in subsections (5) to (7) is subject to the following
restriction.

(9) 5If expenses are reversed in the period concerned or any preceding accounting
period, any acquisition expenses included in those expenses are not to count as
deemed BLAGAB management expenses for the period concerned.

80 Section 79: meaning of “acquisition expenses”

(1) This section explains for the purposes of section 79 what is meant by
10“acquisition expenses”.

(2) The following are “acquisition expenses”—

(a) commissions (however described) other than commissions for persons
who collect premiums from house to house,

(b) any other expenses payable solely for the purpose of the acquisition of
15business, and

(c) so much of any other expenses payable partly for that purpose, and
partly for other purposes, as are properly attributable to the acquisition
of business.

(3) The exclusion from paragraph (a) of subsection (2) of commissions for persons
20who collect premiums from house to house does not prevent their counting as
expenses under another paragraph of that subsection.

(4) For the purposes of that subsection “the acquisition of business” includes—

(a) the securing of the payment of increased or additional premiums in
respect of a policy of insurance issued in respect of an insurance
25already made, and

(b) the securing of the payment of increased or additional consideration in
respect of an annuity contract already made.

81 Amounts treated as ordinary BLAGAB management expenses

(1) This section applies in relation to amounts which meet the conditions in section
3077(2)(a) and (b).

(2) The relevant permissive rules apply for the purpose of treating the amounts as
ordinary BLAGAB management expenses for the purposes of section 76 as
they apply for the purpose of treating amounts as expenses of management for
the purposes of Chapter 2 of Part 16 of CTA 2009 (companies with investment
35business).

(3) The following provisions of CTA 2009 are “relevant permissive rules”—

(a) section 1000 (costs of setting up employee share ownership trust),

(b) section 1234 (payments for restrictive undertakings),

(c) section 1235 (employees seconded to charities and educational
40establishments),

(d) section 1237 (counselling and other outplacement expenses),

(e) section 1238(1) to (3) (retraining courses),

(f) sections 1239 to 1242 (redundancy payments and approved contractual
payments),

(g) 45section 1243 (payments made by the Government), and