minimum profits test Flashcards
minimum profits test
As you can see, we have two columns. The component that you will be most familiar with is the ‘Adjusted BLAGAB I-E profit’ component. This is basically the number that we would get as a result of the standard I-E calculation, subject to a few adjustments (mainly the addition of BLAGAB non-taxable distributions). And is the number that is taxed. Additionally, this I-E number is BEFORE taking into account any deemed receipt (obviously).
The column on the right hand side is a separate computation that also needs to be calculated. This computation takes the form somewhat more similar to that of a standard company.
In the cases that this column is higher than the left, we would end up in a situation whereby HMRC would be receiving an amount of tax less than they would had the computation been produced without life tax rules. HMRC obviously wouldn’t like this, and as a result we have to include the difference in the computation that we tax. This difference will go into the comp as a ‘deemed receipt’. You may notice that it says ‘Adjusted’ trade profit, the only adjustment is the deduction of bf BLAGAB trade losses.
This amount can then be carried forward into next years comp and used as a deductible expense (so that we aren’t worse off next year due to the life tax rules; how considerate of them.)
Similar to the old regime, the Adjusted BLAGAB I–E profit measure can be negative, whereas the adjusted BLAGAB trade profit measure cannot.
excess blagab expenses
Similar to the old regime, the Adjusted BLAGAB I–E profit measure can be negative, whereas the adjusted BLAGAB trade profit measure cannot.
Where you have a BLAGAB I–E loss
Like I said – the BLAGAB I–E profit measure can be negative for these purposes, but Adjusted BLAGAB trade profit cannot.
So in this scenario – this whole amount is treated as the I-E deemed receipt of the period.
what we compare
The minimum profits test ensures that BLAGAB I-E profits that are subject to tax are at least equal to the shareholder profits for the year. Where the I-E profits that we would otherwise tax are lower than shareholder profits, we bring in additional income to this calculation to ensure we tax this minimum amount.
We compare the adjusted I-E profits with the adjusted BLAGAB trade profits.
BLAGAB NTD
For the purposes of the calculation, non-taxable distributions include:
Dividends received attributable to BLAGAB business are exempt from tax
Dividends will be included in the trade profit calculation, but not the I-E calculation.
Therefore need to adjust I-E profits to include them to ensure the ‘deemed receipt’ isn’t bringing these dividends into tax.
I-E less than trade profit
If the trade profit is higher than the I-E profit, the company would pay less tax than if they would be subject to tax outside of the life tax rules. As a result of this, we have to include the difference in the I-E computation, which we tax. The difference will go into the I-E computation as additional taxable income (‘a deemed receipt’). In effect, the total amount subject to tax in this case will then be the BLAGAB trade profits, less non-taxable dividends
The deemed receipt can be carried forward into next year’s computation and used as a deductible expense.
As mentioned earlier, the Adjusted BLAGAB I-E profit measure can be negative, whereas the Adjusted trade profit measure cannot. Where you have a BLAGAB I-E loss, the whole amount is taxed as an I-E deemed receipt of the period up to the amount of Adjusted BLAGAB trade profit. The deemed receipt can be carried forward into next year’s computation and used as a deductible expense.
