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Ch 6

S

SABeauty

Member
In ch6 they say mutual would not normally have OLTB profit - why is this?
 
OLTB is taxed on its trading profits. The trading profits is broadly an adjusted "surplus arising" over the period, though not on the same basis as FSA returns.

This "surplus arising" within the mutual is wholly owned by policyholders, ignoring specifics about mutual's own constitution. So I would think any surplus is treated as some kind of future "planned enhancement" to policyholder's benefits thus increasing the closing reserves such that the surplus account (or profit) is zeroised.

I guess the follow up question is; if mutuals aren't having OLTB taxable profits hence no corporation tax, then those in that market are at an advantage relative to proprietary companies; in that they could possibly write policies more cheaply? Though it could be true, I wouldn't think it's material. The nature of mutuals would suggest that most of its business would come under BLAGAB (mostly With-profits) as opposed to OLTB.

Hope it helps.

Regards
 
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