BLAGAB Tax Computation Appendix Example

[Nicholas_B]

Hi

I have a question with respect to the BLAGAB Tax Computation Appendix Example on page 18 of Chapter 7 - Taxation (2) for the 2023 exam syllabus.

There seems to be some circular reference in the computation of the [Policyholder share of taxable profits] which got me confused.

All is well at the Total I-E taxable profits = 80.

-The [Shareholder share of taxable profits] is dependent on Calculation 2, which is derived from the [BLAGAB trade profit] component.
-The [BLAGAB trade profit] component is derived from Calculation 1, and part of Calculation 1's computation is derived from deducting [Policyholder current tax deduction] component of (10)
-This [Policyholder current tax deduction] component appears to be derived by taking 20% of 48 (and rounded up from 9.6 to 10?)
-But this 48 is derived from [Total I-E taxable profits = 80] less the [Shareholder share of taxable profits = 32].
-This is where the circular reference seems to arise - How can we derive [Policyholder share of taxable profits] if [Shareholder share of taxable profits] is dependent on its value?

Am I missing something here?

 

[Lindsay Smitherman]

Yes, there is indeed a circular reference in the calculation as set out in that Appendix. In practice an approximation would be used to resolve this, but you wouldn't be expected to know such detail.