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It has always been a feature of life insurance taxation that a company taxed on the I-E basis must compare its profit calculated on that basis with the trading profit realised during the period to provide a minimum level of profit in charge. This comparison is usually referred to by practitioners as the 'minimum profits test'.

The effect of the comparison is that as a minimum the company will always be taxed on an amount of I-E profit equal to the shareholders' trade profits from writing the company's BLAGAB. This reflects the fact that the charge to tax on the I-E profits denies HMRC the right to charge tax on the trade profits so a mechanism is needed to ensure that the taxable BLAGAB profits of a company subject to the I-E basis of taxation does not fall below the company's actual trading profits arising on that business.

This policy objective is achieved by requiring a comparison between the I-E profit or excess BLAGAB expenses for the period (disregarding any effect of performing