Corporation Tax Act 2010

Part 8 U.K. Oil activities

Chapter 1 U.K. Introduction

270 Overview of Part U.K.

(1) This Part is about the corporation tax treatment of oil activities.

(2) Chapter 2 contains basic definitions used in this Part.

(3) Chapter 3 treats oil-related activities as a separate trade.

(4) Chapter 4 makes provision about the calculation of profits from oil activities.

(5) Chapter 5 makes provision about ring fence expenditure supplement.

F1 (5A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) Chapter 6 makes provision about the supplementary charge in respect of ring fence trades.

[F2 (6A) Chapter 6A makes provision about the reduction of supplementary charge by an allowance for certain expenditure incurred in relation to qualifying oil fields for the purposes of oil-related activities.]

F3 (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F4 (7A) Chapter 8 makes provision about the reduction of supplementary charge by an allowance for capital expenditure incurred for the purposes of onshore oil-related activities.]

[F5 (7B) Chapter 9 makes provision about the reduction of supplementary charge by an allowance for certain expenditure incurred in relation to a cluster area for the purposes of oil-related activities.]

(8) For the meaning of—

(a) “oil-related activities”, see section 274, [F6 and]

(b) “ring fence trade”, see section 277, F7 ...

F7 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 S. 270(5A) omitted (with effect in accordance with Sch. 11 para. 14 of the amending Act) by virtue of Finance Act 2015 (c. 11), Sch. 11 para. 11

F2 S. 270(6A) inserted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2015 (c. 11), Sch. 14 para. 2(2)

F3 S. 270(7) omitted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by virtue of Finance Act 2015 (c. 11), Sch. 14 para. 2(3)

F4 S. 270(7A) inserted (with effect in accordance with Sch. 15 para. 6(1) of the amending Act) by Finance Act 2014 (c. 26), Sch. 15 para. 5(2)(a)

F5 S. 270(7B) inserted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2015 (c. 11), Sch. 14 para. 2(4)

F6 Word in s. 270(8)(a) inserted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2015 (c. 11), Sch. 14 para. 2(5)(a)

F7 S. 270(8)(c) and preceding word omitted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by virtue of Finance Act 2015 (c. 11), Sch. 14 para. 2(5)(b)

Chapter 2 U.K. Basic definitions

271 “Associated companies” U.K.

(1) For the purposes of this Part two companies are associated with one another if—

(a) one is a 51% subsidiary of the other,

(b) each is a 51% subsidiary of a third company,

(c) one is owned by a consortium of which the other is a member,

(d) one has control of the other, or

(e) both are under the control of the same person.

(2) For the purposes of this section—

(a) a company is owned by a consortium if at least 75% of the company's ordinary share capital is beneficially owned by other companies each of which beneficially owns at least 5% of that capital, and

(b) the other companies each owning at least 5% of that capital are the members of the consortium.

(3) In this section “control” has the same meaning as in Part 10 (close companies) (see sections 450 and 451).

272 “Oil extraction activities” U.K.

(1) In this Part “oil extraction activities” means activities within any of subsections (2) to (5) (but see also section 291(6)).

(2) Activities of a company in searching for oil in the United Kingdom or a designated area or causing such searching to be carried out for it.

(3) Activities of a company in extracting, or causing to be extracted for it, oil at any place in the United Kingdom or a designated area under rights which—

(a) authorise the extraction, and

(b) are held by it or by a company associated with it.

(4) Activities of a company in transporting, or causing to be transported for it, oil extracted at any such place not on dry land under rights which—

(a) authorise the extraction, and

(b) are held as mentioned in subsection (3)(b),

if the transportation meets condition A or B (see subsections (6) and (7)).

(5) Activities of a company in effecting, or causing to be effected for it, the initial treatment or initial storage of oil won from any oil field under rights which—

(a) authorise its extraction, and

(b) are held as mentioned in subsection (3)(b).

(6) Condition A is that the transportation is to the place where the oil is first landed in the United Kingdom.

(7) Condition B is that the transportation—

(a) is to the place in the United Kingdom, or

(b) in the case of oil first landed in another country, is to the place in that or any other country (other than the United Kingdom),

at which the seller in a sale at arm's length could reasonably be expected to deliver it (or, if there is more than one such place, the one nearest to the place of extraction).

(8) The definition of “initial storage” in section 12(1) of OTA 1975 applies for the purposes of this section.

(9) But in its application for those purposes in relation to the company mentioned in subsection (5) and to oil won from any one oil field, that definition is to have effect as if the reference to the maximum daily production rate of oil for the field mentioned in that definition were to a share of that maximum daily production rate proportionate to that company's share of the oil won from that field.

(10) In this section “initial treatment” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act).

273 “Oil rights” U.K.

In this Part “oil rights” means—

(a) rights to oil to be extracted at any place in the United Kingdom or a designated area, or

(b) rights to interests in or to the benefit of such oil.

274 “Oil-related activities” U.K.

In this Part “oil-related activities” means—

(a) oil extraction activities, and

(b) any activities consisting of the acquisition, enjoyment or exploitation of oil rights.

275 “Ring fence income” U.K.

In this Part “ring fence income” means income arising from oil extraction activities or oil rights.

276 “Ring fence profits” U.K.

In this Part “ring fence profits”, in relation to an accounting period, means—

(a) if in accordance with section 197(3) of TCGA 1992 a company has an aggregate gain for that period, that gain and that company's ring fence income (if any) for that period, or

(b) otherwise, that company's ring fence income for that period.

277 “Ring fence trade” U.K.

In this Part “ring fence trade” means activities which—

(a) are within the definition of “oil-related activities” in section 274, and

(b) constitute a separate trade (whether because of section 279 or otherwise).

278 Other definitions U.K.

In this Part—

• “chargeable period” has the same meaning as in Part 1 of OTA 1975 (see section 1(3) of that Act),

• “designated area” means an area designated by Order in Council under section 1(7) of the Continental Shelf Act 1964,

• “oil” means any substance won or capable of being won under the authority of a licence granted under Part 1 of the Petroleum Act 1998 or the Petroleum (Production) Act (Northern Ireland) 1964 (c. 28 (N.I.)), other than methane gas won in the course of operations for making and keeping mines safe,

• [F8 “ the OGA ” means the Oil and Gas Authority,]

• “oil field” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act),

• “OTA 1975” means the Oil Taxation Act 1975, and

• “participator” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act).

Textual Amendments

F8 Words in s. 278 inserted (1.10.2016) by The Petroleum (Transfer of Functions) Regulations 2016 (S.I. 2016/898), regs. 1(2), 15(2)

Chapter 3 U.K. Deemed separate trade

279 Oil-related activities treated as separate trade U.K.

If a company carries on any oil-related activities as part of a trade, those activities are treated for the purposes of the charge to corporation tax on income as a separate trade, distinct from all other activities carried on by the company as part of the trade.

[F9 CHAPTER 3A U.K. Rates at which corporation tax is charged on ring fence profits

Textual Amendments

F9 Pt. 8 Ch. 3A inserted (with effect in accordance with Sch. 1 para. 22 of the amending Act) by Finance Act 2014 (c. 26), Sch. 1 para. 5(3)

The rates U.K.

279A Corporation tax rates on ring fence profits U.K.

(1) Corporation tax is charged on ring fence profits at the main ring fence profits rate.

(2) But subsection (3) provides for tax to be charged at the small ring fence profits rate instead of the main ring fence profits rate in certain circumstances.

(3) Corporation tax is charged at the small ring fence profits rate on a company's ring fence profits of an accounting period if—

(a) the company is UK resident in the accounting period, and

(b) its augmented profits of the accounting period do not exceed the lower limit.

(4) In this Act—

• “the main ring fence profits rate” means 30%, and

• “the small ring fence profits rate” means 19%.

Marginal relief U.K.

279B Company with only ring fence profits U.K.

(1) This section applies if—

(a) a company is UK resident in an accounting period,

(b) its augmented profits of the accounting period—

(i) exceed the lower limit, but

(ii) do not exceed the upper limit, and

(c) its augmented profits of that period consist exclusively of ring fence profits.

(2) The corporation tax charged on the company's taxable total profits of the accounting period is reduced by an amount equal to—

where—

R is the marginal relief fraction,

U is the upper limit,

A is the amount of the augmented profits, and

N is the amount of the taxable total profits.

(3) In this Chapter “the marginal relief fraction” means 11/400ths.

279C Company with ring fence profits and other profits U.K.

(1) This section applies if—

(a) a company is UK resident in an accounting period,

(b) its augmented profits of the accounting period—

(i) exceed the lower limit, but

(ii) do not exceed the upper limit, and

(c) its augmented profits of that period consist of both ring fence profits and other profits.

(2) The corporation tax charged on the company's taxable total profits of the accounting period is reduced by the sum equal to the marginal relief fraction of the ring fence amount.

279D The ring fence amount U.K.

(1) In section 279C “the ring fence amount” means the amount given by the formula—

(2) In this section—

UR is the amount given by multiplying the upper limit by—

AR is the total amount of any ring fence profits that form part of the augmented profits of the accounting period,

NR is the total amount of any ring fence profits that form part of the taxable total profits of the accounting period, and

A is the amount of the augmented profits of the accounting period.

The lower limit and the upper limit U.K.

279E The lower limit and the upper limit U.K.

(1) This section gives the meaning in this Chapter of “the lower limit” and “the upper limit” in relation to an accounting period of a company (“A”).

(2) If no company is a related 51% group company of A in the accounting period—

(a) the lower limit is £300,000, and

(b) the upper limit is £1,500,000.

(3) If one or more companies are related 51% group companies of A in the accounting period—

(a) the lower limit is—

and

(b) the upper limit is—

where N is the number of those related 51% group companies.

(4) For an accounting period of less than 12 months the lower limit and the upper limit are proportionately reduced.

Related 51% group companies U.K.

279F “Related 51% group company” U.K.

(1) For the purposes of this Chapter a company (“B”) is a related 51% group company of another company (“A”) in an accounting period if for any part of the accounting period—

(a) A is a 51% subsidiary of B,

(b) B is a 51% subsidiary of A, or

(c) both A and B are 51% subsidiaries of the same company.

(2) The rule in subsection (1) applies to each of two or more related 51% group companies even if they are related 51% group companies for different parts of the accounting period.

(3) But a related 51% group company is ignored for the purposes of section 279E if—

(a) it has not carried on a trade or business at any time in the accounting period, or

(b) it was a related 51% group company for part only of the accounting period and has not carried on a trade or business at any time in that part of the accounting period.

(4) Subsection (3) is subject to subsections (5) to (9).

(5) Subsection (6) applies if a company carries on a business of making investments in an accounting period and throughout the period the company—

(a) carries on no trade,

(b) has one or more 51% subsidiaries, and

(c) is a passive company.

(6) The company is treated for the purposes of subsection (3) as not carrying on a business at any time in the accounting period.

(7) A company is a passive company throughout an accounting period only if the following requirements are met—

(a) it has no assets in that period, other than shares in companies which are its 51% subsidiaries,

(b) no income arises to it in that period other than dividends,

(c) if income arises to it in that period in the form of dividends—

(i) the redistribution condition is met (see subsection (8)), and

(ii) the dividends are [F10 exempt ABGH distributions] received by it,

(d) no chargeable gains accrue to it in that period,

(e) no expenses of management of the business mentioned in subsection (5) are referable to that period, and

(f) no qualifying charitable donations are deductible from the company's total profits of that period.

(8) The redistribution condition is that—

(a) the company pays dividends to one or more of its shareholders in the accounting period, and

(b) the total amount paid in the form of those dividends is at least equal to the amount of the income arising to the company in the form of dividends in that period.

(9) If income arises to a company in an accounting period in the form of a dividend and the requirement in subsection (7)(c) is met in respect of the income—

(a) neither the dividend nor any asset representing it is treated as an asset of the company in that accounting period for the purposes of subsection (7)(a), and

(b) no right of the company to receive the dividend is treated as an asset of the company for the purposes of subsection (7)(a) in that period or any earlier accounting period.

[F11 (10) In subsection (7)(c) “exempt ABGH distribution” means a distribution which—

(a) is a distribution for the purposes of the Corporation Tax Acts only because it falls within paragraph A, B, G or H in section 1000(1), and

(b) is exempt for the purposes of Part 9A of CTA 2009 (company distributions).]

Textual Amendments

F10 Words in s. 279F(7)(c)(ii) substituted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 29(2)

F11 S. 279F(10) inserted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 29(3)

Modifications etc. (not altering text)

C1 S. 279F modified (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 39(1)(2)(a)

Augmented profits U.K.

279G “Augmented profits” U.K.

(1) For the purposes of this Chapter a company's augmented profits of an accounting period are—

(a) the company's adjusted taxable total profits of that period, plus

(b) any [F12 exempt ABGH distributions] received by the company that [F13 are] not excluded by subsection (3).

(2) A company's “adjusted taxable total profits” of a period are what would have been the company's taxable total profits of the period in the absence of sections 1(2A), 2B and 8(4A) of TCGA 1992 and section 2(2A) of CTA 2009 (certain gains on relevant high value disposals by companies etc chargeable to capital gains tax not corporation tax).

(3) This subsection excludes any [F14 exempt ABGH distribution] which the company (“the receiving company”) receives from a company which is—

(a) a 51% subsidiary of—

(i) the receiving company, or

(ii) a company of which the receiving company is a 51% subsidiary, or

(b) a trading company or relevant holding company that is a quasi-subsidiary of the receiving company.

(4) For the purposes of subsection (3)(b) a company is a quasi-subsidiary of the receiving company if—

(a) it is owned by a consortium of which the receiving company is a member,

(b) it is not a 75% subsidiary of any company, and

(c) no arrangements of any kind (whether in writing or not) exist by virtue of which it could become a 75% subsidiary of any company.

[F15 (5) In this section “exempt ABGH distribution” means a distribution which—

(a) is a distribution for the purposes of the Corporation Tax Acts only because it falls within paragraph A, B, G or H in section 1000(1), and

(b) is exempt for the purposes of Part 9A of CTA 2009 (company distributions).]

Textual Amendments

F12 Words in s. 279G(1)(b) substituted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 30(2)(a)

F13 Word in s. 279G(1)(b) substituted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 30(2)(b)

F14 Words in s. 279G(3) substituted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 30(3)

F15 S. 279G(5) inserted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 30(5)

Modifications etc. (not altering text)

C2 S. 279G modified (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 39(1)(2)(a)

279H Interpretation of section 279G(3) and (4) U.K.

(1) For the purposes of section 279G(3)(a), a company (“A”) is a 51% subsidiary of another company (“B”) only at times when—

(a) B would be beneficially entitled to more than 50% of any profits available for distribution to equity holders of A, and

(b) B would be beneficially entitled to more than 50% of any assets of A available for distribution to its equity holders on a winding up.

(2) The requirement in subsection (1) is in addition to the requirements of section 1154(2) (meaning of 51% subsidiary).

(3) In determining for the purposes of section 279G(3)(a) whether or not a company is a 51% subsidiary of another company (“C”), C is treated as not being the owner of share capital if—

(a) it owns the share capital indirectly,

(b) the share capital is owned directly by a company (“D”), and

(c) a profit on the sale of the shares would be a trading receipt for D.

(4) In section 279G(3)(b) and this section—

• “trading company” means a company whose business consists wholly or mainly of carrying on a trade or trades, and

• “relevant holding company” means a company whose business consists wholly or mainly of holding shares in or securities of trading companies that are its 90% subsidiaries.

(5) For the purposes of section 279G(4), a company is owned by a consortium if at least 75% of the company's ordinary share capital is beneficially owned by two or more companies each of which—

(a) beneficially owns at least 5% of that capital,

(b) would be beneficially entitled to at least 5% of any profits available for distribution to equity holders of the company, and

(c) would be beneficially entitled to at least 5% of any asset of the company available for distribution to its equity holders on a winding up.

(6) The companies meeting those conditions are called the members of the consortium.

(7) Chapter 6 of Part 5 (equity holders and profits or assets available for distribution) applies for the purposes of subsections (1) and (5) as it applies for the purposes of section 151(4)(a) and (b).]

Chapter 4 U.K. Calculation of profits

Oil valuation U.K.

280 Disposal to be valued by reference to section 2(5A) of OTA 1975 U.K.

(1) This section applies if each of conditions A to G is met.

(2) Condition A is that oil is won from an oil field in the United Kingdom.

(3) Condition B is that there is a disposal of the oil by a company.

(4) Condition C is that the disposal is a disposal of the oil by the company crude in a sale at arm's length (as defined in paragraph 1 of Schedule 3 to OTA 1975).

(5) Condition D is that the circumstances are such that the price received or receivable—

(a) falls to be taken into account under section 2(5)(a) of that Act in calculating for petroleum revenue tax purposes the assessable profit or allowable loss accruing to the company in a chargeable period from the oil field, or

(b) would fall to be so taken into account, had the oil field been a taxable field (as defined in section 185 of FA 1993).

(6) Condition E is that the terms of the contract are such as are described in the opening words of section 2(5A) of OTA 1975 (transportation etc).

(7) Condition F is that, but for subsection (9), the company is not entitled to a transportation allowance in respect of the oil in calculating ring fence profits.

(8) Condition G is that the company does not claim a transportation allowance in respect of the oil in calculating for corporation tax purposes any profits that are not ring fence profits.

(9) Section 2(5A) of OTA 1975 is to apply in determining the amount which the company is to bring into account for the purposes of the charge to corporation tax on income in respect of the disposal as it applies (or would apply) for petroleum revenue tax purposes.

(10) In this section “transportation allowance”, in relation to any oil, means—

(a) a deduction in respect of the expense of transporting the oil as mentioned in the opening words of section 2(5A) of OTA 1975,

(b) a deduction in respect of any costs of or incidental to the transportation of the oil as so mentioned, or

(c) any such reduction in the price to be regarded as received or receivable for the oil as would result from the application of section 2(5A) of OTA 1975, if that provision applied for corporation tax purposes.

281 Valuation where market value taken into account under section 2 of OTA 1975 U.K.

(1) This section applies if a person disposes of oil in circumstances such that the market value of the oil—

(a) falls to be taken into account under section 2 of OTA 1975, otherwise than by virtue of paragraph 6 of Schedule 3 to that Act, in calculating for petroleum revenue tax purposes the assessable profit or allowable loss accruing to that person in a chargeable period from an oil field, or

(b) would so fall but for section 10 of that Act.

(2) For the purposes of the charge to corporation tax on income, the disposal of the oil, and its acquisition by the person to whom it was disposed of, are to be treated as having been for a consideration equal to the market value of the oil—

(a) as so taken into account under section 2 of that Act, or

(b) as would have been so taken into account under that section but for section 10 of that Act.

282 Valuation where disposal not sale at arm's length U.K.

(1) This section applies if conditions A, B and C are met.

(2) Condition A is that a person disposes of oil acquired by the person—

(a) in the course of oil extraction activities carried on by the person, or

(b) as a result of oil rights held by the person.

(3) Condition B is that the disposal is not a sale at arm's length (as defined in paragraph 1 of Schedule 3 to OTA 1975).

(4) Condition C is that section 281 does not apply in relation to the disposal.

(5) For the purposes of the charge to corporation tax on income, the disposal of the oil, and its acquisition by the person to whom it was disposed of, are to be treated as having been for a consideration equal to the market value of the oil.

(6) Paragraphs 2 and 3A of Schedule 3 to OTA 1975 (definition of market value of oil including light gases) apply for the purposes of this section as they apply for the purposes of Part 1 of that Act, but with the following modifications.

(7) Those modifications are that—

(a) any reference in paragraph 2 to the notional delivery day for the actual oil is to be read as a reference to the day on which the oil is disposed of as mentioned in this section, and

(b) paragraph 2(4) is to be treated as omitted.

283 Valuation where excess of nominated proceeds U.K.

(1) This section applies if an excess of nominated proceeds for a chargeable period—

(a) is taken into account in calculating a company's profits under section 2(5)(e) of OTA 1975, or

(b) would have been so taken into account if the company were chargeable to tax under OTA 1975 in respect of an oil field.

(2) For the purposes of the charge to corporation tax on income, the amount of the excess is to be added to the consideration which the company is treated as having received in respect of oil disposed of by it in the period.

(3) For corporation tax purposes, that amount is to be available to the company as a deduction in calculating the profits of any trade which (whether because of section 279 or otherwise) does not consist of activities falling within the definition of “oil-related activities” in section 274.

284 Valuation where relevant appropriation but no disposal U.K.

(1) This section applies if conditions A and B are met.

(2) Condition A is that a company makes a relevant appropriation of oil without disposing of it.

(3) Condition B is that the company does so in circumstances such that the market value of the oil—

(a) falls to be taken into account under section 2 of OTA 1975 in calculating for petroleum revenue tax purposes the assessable profit or allowable loss accruing to it in a chargeable period from an oil field, or

(b) would so fall but for section 10 of that Act.

(4) For the purposes of the charge to corporation tax on income, the company is to be treated as having, at the time of the appropriation—

(a) sold the oil in the course of the separate trade consisting of activities falling within the definition of “oil-related activities” in section 274, and

(b) purchased it in the course of the separate trade consisting of activities not so falling.

(5) For those purposes, that sale and purchase is to be treated as having been at a price equal to the market value of the oil—

(a) as so taken into account under section 2 of OTA 1975, or

(b) as would have been so taken into account under that section but for section 10 of that Act.

(6) In this section “relevant appropriation” has the meaning given by section 12(1) of OTA 1975.

285 Valuation where appropriation to refining etc U.K.

(1) This section applies if conditions A, B and C are met.

(2) Condition A is that a company appropriates oil acquired by it—

(a) in the course of oil extraction activities carried on by it, or

(b) as a result of oil rights held by it.

(3) Condition B is that the oil is appropriated to refining or to any use except the production purposes of an oil field (as defined in section 12(1) of OTA 1975).

(4) Condition C is that section 284 does not apply in relation to the appropriation.

(5) For the purposes of the charge to corporation tax on income—

(a) the company is to be treated as having, at the time of the appropriation, sold and purchased the oil as mentioned in section 284(4)(a) and (b), and

(b) that sale and purchase is to be treated as having been at a price equal to the market value of the oil.

(6) Paragraphs 2 and 3A of Schedule 3 to OTA 1975 (definition of market value of oil including light gases) apply for the purposes of this section as they apply for the purposes of Part 1 of that Act, but with the following modifications.

(7) Those modifications are that—

(a) any reference in paragraph 2 to the notional delivery day for the actual oil is to be read as a reference to the day on which the oil is appropriated as mentioned in this section,

(b) any reference in paragraphs 2 and 2A to oil being relevantly appropriated is to be read as a reference to its being appropriated as mentioned in this section, and

(c) paragraph 2(4) is to be treated as omitted.

[F16 Hire of relevant assets U.K.

Textual Amendments

F16 S. 285A and cross-heading inserted (retrospective to 1.4.2014) by Finance Act 2014 (c. 26), Sch. 16 paras. 3, 6

285A Restriction on hire etc of relevant assets to be brought into account U.K.

(1) This section applies if—

(a) oil contractor activities are, or are to be, carried out, and

(b) a company that carries on a ring fence trade makes, or is to make, one or more payments under a lease of a relevant asset, or part of a relevant asset, which is, or is to be, provided, operated or used in the relevant offshore service in question.

(2) The total amount that may be brought into account in respect of the payments for the purposes of calculating the company's ring fence profits in an accounting period is limited to the hire cap.

(3) The “hire cap” is an amount equal to the relevant percentage of TC for the accounting period, subject to subsection (4).

(4) If payments in relation to which subsection (2) or section 356N(2) (restriction on hire for oil contractors under Part 8ZA) applies are also made, or to be made, by one or more other companies in respect of the relevant asset or part, the “hire cap” is to be such proportion of the amount mentioned in subsection (3) as is just and reasonable, having regard (in particular) to the amounts of the payments made, or to be made, by each company.

(5) The “relevant percentage” and TC are to be determined in accordance with section 356N(5) to (16).

(6) To the extent that, by virtue of this section, payments within subsection (1)(b) cannot be brought into account for the purposes of calculating the company's ring fence profits in an accounting period, the payments may be—

(a) allowed as a deduction from the company's total profits for the accounting period, or

(b) treated as a surrenderable amount of the company for the accounting period for the purposes of Part 5 (group relief) (see section 99(7)) as if they were a trading loss,

but this is subject to subsection (7).

(7) No deduction may be made by virtue of subsection (6) from total profits so far as they are ring fence profits or contractor's ring fence profits.

(8) If the company or an associated person enters into arrangements the main purpose or one of the main purposes of which is to secure that subsection (2) does not apply in relation to one or more payments to any extent, that subsection applies in relation to the payments to the extent that it would not otherwise do so.

(9) In subsection (8) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

(10) In this section—

• “associated person” has the meaning given by section 356LB;

• “contractor's ring fence profits” has the meaning given by section 356LD;

• “oil contractor activities” and “relevant offshore service” have the meaning given by section 356L;

• “relevant asset” has the meaning given by section 356LA;

• “lease” has the meaning given by section 868.]

Loan relationships U.K.

286 Restriction on debits to be brought into account U.K.

(1) Debits may not be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of a company's loan relationships in any way that results in a reduction of what would otherwise be the company's ring fence profits, but this is subject to subsections (2) to (4).

(2) Subsection (1) does not apply so far as a loan relationship is in respect of money borrowed by the company which has been—

(a) used to meet expenditure incurred by the company in carrying on oil extraction activities or in acquiring oil rights otherwise than from a connected person, or

(b) appropriated to meeting expenditure to be so incurred by the company.

(3) Subsection (1) does not apply, in the case of debits falling to be brought into account as a result of section 329 of CTA 2009 in respect of a loan relationship that has not been entered into, so far as the relationship would have been one entered into for the purpose of borrowing money to be used or appropriated as mentioned in subsection (2).

(4) Subsection (1) does not apply, in the case of debits in respect of a loan relationship to which Chapter 2 of Part 6 of CTA 2009 (relevant non-lending relationships) applies, so far as—

(a) the payment of interest under the relationship is expenditure incurred as mentioned in subsection (2)(a), or

(b) the exchange loss arising from the relationship is in respect of a money debt on which the interest payable (if any) is, or would be, such expenditure.

(5) If a debit—

(a) falls to be brought into account for the purposes of Part 5 of CTA 2009 in respect of a loan relationship of a company, but

(b) as a result of this section cannot be brought into account in a way that results in any reduction of what would otherwise be the company's ring fence profits,

the debit is to be brought into account for those purposes as a non-trading debit despite anything in section 297 of that Act.

(6) References in this section to a loan relationship, in relation to the borrowing of money, do not include a relationship to which Chapter 2 of Part 6 of CTA 2009 (relevant non-lending relationships) applies.

287 Restriction on credits to be brought into account U.K.

(1) Credits in respect of exchange gains from a company's loan relationships may not be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in any way that results in an increase of what would otherwise be the company's ring fence profits, but this is subject to subsections (2) to (4).

(2) Subsection (1) does not apply so far as a loan relationship is in respect of money borrowed by the company which has been—

(a) used to meet expenditure incurred by the company in carrying on oil extraction activities or in acquiring oil rights otherwise than from a connected person, or

(b) appropriated to meeting expenditure to be so incurred by the company.

(3) Subsection (1) does not apply, in the case of credits falling to be brought into account as a result of section 329 of CTA 2009 in respect of a loan relationship that has not been entered into, so far as the relationship would have been one entered into for the purpose of borrowing money to be used or appropriated as mentioned in subsection (2).

(4) Subsection (1) does not apply, in the case of credits in respect of a loan relationship to which Chapter 2 of Part 6 of CTA 2009 (relevant non-lending relationships) applies, so far as—

(a) the payment of interest under the relationship is expenditure incurred as mentioned in subsection (2)(a), or

(b) the exchange gain arising from the relationship is in respect of a money debt on which the interest payable (if any) is, or would be, such expenditure.

(5) If a credit—

(a) falls to be brought into account for the purposes of Part 5 of CTA 2009 in respect of any loan relationship of a company, but

(b) as a result of this section cannot be brought into account in a way that results in any increase of what would otherwise be the company's ring fence profits,

the credit is to be brought into account for those purposes as a non-trading credit despite anything in section 297 of that Act.

(6) Section 286(6) applies for the purposes of this section.

[F17 287A Restriction where debits or credits relate to decommissioning security settlement U.K.

(1) No debits or credits are to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of a company's loan relationship so far as the loan relationship is in respect of property comprised in a decommissioning security settlement.

(2) For the purposes of this section a settlement is a “decommissioning security settlement” if the sole or main purpose of the settlement is to provide security for the performance of obligations under an abandonment programme.

(3) In subsection (2)—

• “abandonment programme” means an abandonment programme approved under Part 4 of the Petroleum Act 1998 (including such a programme as revised), and

• “security” has the same meaning as in section 38A of that Act.]

Textual Amendments

F17 S. 287A inserted (with effect in accordance with s. 87(3) of the amending Act) by Finance Act 2013 (c. 29), s. 87(1)

Sale and lease-back U.K.

288 Sale and lease-back U.K.

(1) This section applies if conditions A, B and C are met.

(2) Condition A is that a company (“the seller”) carrying on a trade has disposed of—

(a) an asset which was used for the purposes of that trade, or

(b) an interest in such an asset.

(3) Condition B is that the asset is used, under a lease, by the seller or a company associated with the seller (“the lessee”) for the purposes of a ring fence trade carried on by the lessee.

(4) Condition C is that the lessee uses the asset before the end of the period of two years beginning with the disposal.

(5) Subsection (6) applies to so much (if any) of the expenditure incurred by the lessee under the lease as—

(a) falls, in accordance with generally accepted accounting practice, to be treated in the accounts of the lessee as a finance charge, or

(b) falls, if the lease is a long funding operating lease, to be deductible in calculating the profits of the lessee for corporation tax purposes (after first making against any such expenditure any reductions falling to be made as a result of section 379 (lessee under long funding operating lease)).

But subsection (6) is subject to subsection (7).

(6) The expenditure is not allowable in calculating for the purposes of Part 3 of CTA 2009 the profits of the ring fence trade.

(7) Expenditure is not to be disallowed because of subsection (6) so far as the disposal mentioned in subsection (2) is made for a consideration which—

(a) is used to meet expenditure incurred by the seller in carrying on oil extraction activities or in acquiring oil rights otherwise than from a company associated with the seller, or

(b) is appropriated to meeting expenditure to be so incurred by the seller.

(8) If any expenditure—

(a) would, but for subsection (6), be allowable in calculating for the purposes of Part 3 of CTA 2009 the profits of the ring fence trade for an accounting period, but

(b) because of that subsection is not so allowable,

the expenditure is to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) as if it were a non-trading debit in respect of a loan relationship of the lessee for that period.

(9) In this section—

• “long funding operating lease” means a long funding operating lease for the purposes of Part 2 of CAA 2001 (see section 70YI(1) of that Act), and

• “lease”, in relation to an asset, has the same meaning as in Chapter 3 of Part 19 (see section 868).

Regional development grants U.K.

289 Reduction of expenditure by reference to regional development grant U.K.

(1) This section applies if conditions A and B are met.

(2) Condition A is that a person has incurred expenditure (by way of purchase, rent or otherwise) on the acquisition of an asset in a transaction to which paragraph 2 of Schedule 4 to OTA 1975 applies (transactions between connected persons or otherwise than at arm's length).

(3) Condition B is that the expenditure incurred by the other person mentioned in that paragraph in acquiring, bringing into existence or enhancing the value of the asset as mentioned in that paragraph—

(a) has been or is to be met by a regional development grant, and

(b) falls (in whole or in part) to be taken into account under Part 2 or 6 of CAA 2001 (capital allowances relating to plant and machinery or research and development).

(4) Subsection (5) applies for the purposes of the charge to corporation tax on the income arising from the activities of the person mentioned in subsection (2) which are treated by section 279 as a separate trade for those purposes.

(5) The expenditure mentioned in subsection (2) is to be reduced by the amount of the regional development grant mentioned in subsection (3).

(6) In this section “regional development grant” means a grant falling within section 534(1) of CAA 2001 (Northern Ireland regional development grant).

290 Adjustment as a result of regional development grant U.K.

(1) This section applies if conditions A, B and C are met.

(2) Condition A is that expenditure incurred by a company in relation to an asset in an accounting period (“the initial period”) has been or is to be met by a regional development grant.

(3) Condition B is that, despite the provisions of section 534(2) and (3) of CAA 2001 (Northern Ireland regional development grants) and section 289 of this Act, in determining that company's liability to corporation tax for the initial period, the whole or some part of that expenditure falls to be taken into account under Part 2 or 6 of CAA 2001.

(4) Condition C is that—

(a) expenditure on the asset becomes allowable under section 3 or 4 of OTA 1975 in an accounting period (an “adjustment period”) subsequent to the initial period, or

(b) the proportion of any such expenditure which is allowable in an adjustment period is different as compared with the initial period.

(5) There is to be redetermined for the purposes of subsections (7) and (8) the amount of the expenditure mentioned in subsection (2) which would have been taken into account as mentioned in subsection (3) if the circumstances mentioned in subsection (4) had existed in the initial period.

(6) According to whether the amount as so redetermined is greater or less than the amount actually taken into account as mentioned in subsection (3), the difference is referred to in subsections (7) and (8) as the increase or the reduction in the allowance.

(7) If there is an increase in the allowance, an amount of capital expenditure equal to the increase is to be treated, for the purposes of Part 2 or 6 of CAA 2001, as having been incurred by the company concerned in the adjustment period on an extension of, or addition to, the asset mentioned in subsection (2).

(8) If there is a reduction in the allowance, the company concerned is to be treated, for the purpose of determining its liability to corporation tax, as having received in the adjustment period, as income of the trade in connection with which the expenditure mentioned in subsection (2) was incurred, a sum equal to the amount of the reduction in the allowance.

(9) In this section “regional development grant” has the meaning given by section 289(6).

Tariff receipts etc U.K.

291 Tariff receipts etc U.K.

(1) Subsection (5) applies to a sum which meets conditions A, B and C.

(2) Condition A is that the sum constitutes a tariff receipt F18 ... of a person who is a participator in an oil field.

(3) Condition B is that the sum constitutes consideration in the nature of income rather than capital.

(4) Condition C is that the sum would not, but for subsection (5), be treated as mentioned in that subsection.

(5) The sum is to be treated as a receipt of the separate trade mentioned in section 279.

(6) So far as they would not otherwise be so treated, the activities—

(a) of a participator in an oil field, or

(b) of a person connected with the participator,

in making available an asset in a way which gives rise to tariff receipts F19 ... of the participator are to be treated for the purposes of this Part as oil extraction activities.

(7) In determining for the purposes of subsection (2) whether a sum constitutes a tariff receipt F20 ... of a person who is a participator, no account may be taken of any sum which—

(a) is in fact received or receivable by a person connected with the participator, and

(b) constitutes a tariff receipt F20 ... of the participator.

But in relation to the person by whom such a sum is actually received, subsection (2) has effect as if the person were a participator and as if condition A were met.

(8) References in this section to a person connected with a participator include a person with whom the person is associated, within the meaning of paragraph 11 of Schedule 2 to the Oil Taxation Act 1983, but section 1176(1) of this Act (meaning of “connected” persons) does not apply for the purposes of this section.

[F21 (9) In this section, “tariff receipt” has the meaning given by section 291A.

(10) So far as it would not otherwise be the case, anything that constitutes a tariff receipt or a tax-exempt tariffing receipt for the purposes of the Oil Taxation Act 1983 is to be treated as a “tariff receipt” for the purposes of this section.]

Textual Amendments

F18 Words in s. 291(2) omitted (with effect in accordance with s. 22(5) of the amending Act) by virtue of Finance Act 2018 (c. 3), s. 22(4)(a)

F19 Words in s. 291(6) omitted (with effect in accordance with s. 22(5) of the amending Act) by virtue of Finance Act 2018 (c. 3), s. 22(4)(b)

F20 Words in s. 291(7) omitted (with effect in accordance with s. 22(5) of the amending Act) by virtue of Finance Act 2018 (c. 3), s. 22(4)(c)

F21 S. 291(9)(10) substituted for s. 291(9) (with effect in accordance with s. 22(5) of the amending Act) by Finance Act 2018 (c. 3), s. 22(2)

[F22 291A Meaning of “tariff receipt” U.K.

(1) A “tariff receipt” of a participator in an oil field is the amount or value of any consideration received or receivable by the person in respect of—

(a) the use of a ring fence asset, or

(b) the provision of services or other business facilities (of whatever kind) in connection with the use, otherwise than by the participator, of a ring fence asset.

(2) “Ring fence asset” means a qualifying asset which is, or has been, used wholly or partly for the purposes of a ring fence trade.

(3) “Qualifying asset” means an asset other than—

(a) land or an interest in land, or

(b) a building or structure which—

(i) is situated on land, and

(ii) does not fall within any of sub-paragraphs (i) to (iv) of paragraph (c) of section 3(4) of OTA 1975 (allowable expenditure: exclusions).

(4) But an amount does not constitute a tariff receipt if the amount—

(a) is, in relation to the person giving it, expenditure in respect of interest or any other pecuniary obligation incurred in obtaining a loan or any other form of credit,

(b) is referable to the use of a qualifying asset for, or the provision of services or facilities in connection with, deballasting, or

(c) is referable to other use of an asset, except use wholly or partly for an oil purpose.

(5) Any consideration which includes an amount within subsection (4)(a) to (c) is to be apportioned in a just and reasonable manner.

(6) In subsection (4)(c), the reference to use of an asset for an oil purpose is a reference to—

(a) use in connection with an oil field (including use giving rise to receipts which, for the purposes of this Part, are tariff receipts), and

(b) use for any other purpose (apart from a purpose falling within section 3(1)(b) of OTA 1975 (allowable expenditure: payment in connection with a relevant licence)) of a separate trade consisting of oil-related activities.

Textual Amendments

F22 Ss. 291A, 291B inserted (with effect in accordance with s. 22(5) of the amending Act) by Finance Act 2018 (c. 3), s. 22(3)

291B Tariff receipts: counteraction of avoidance arrangements U.K.

(1) Subsection (2) applies if an arrangement has been entered into, the main purpose or one of the main purposes of which is to obtain a tax advantage by reference to section 291.

(2) The relevant tax advantage is to be counteracted by the making of such adjustments as are just and reasonable.

(3) Any adjustments required to be made under this section (whether or not by an officer of Revenue and Customs) may be made by way of—

(a) an assessment,

(b) the modification of an assessment,

(c) amendment or disallowance of a claim,

or otherwise.

(4) In this section—

• “arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);

• “tax advantage” has the meaning given by section 1139.]

Textual Amendments

F22 Ss. 291A, 291B inserted (with effect in accordance with s. 22(5) of the amending Act) by Finance Act 2018 (c. 3), s. 22(3)

Abandonment guarantees U.K.

292 [F23 Expenditure on abandonment guarantees] U.K.

(1) Subsection (2) applies if, as a result of section 3(1)(hh) of OTA 1975 (obtaining abandonment guarantee), expenditure incurred by a participator in an oil field is allowable (in whole or in part) for petroleum revenue tax purposes under section 3 of that Act.

[F24 (1A) Subsection (2) also applies if expenditure incurred by a participator in an oil field would be so allowable as a result of section 3(1)(hh) of that Act but for the fact that the oil field is a non-taxable oil field within the meaning of Part 3 of FA 1993 (see section 185 of that Act).]

(2) So far as [F25 the expenditure mentioned in subsection (1) or (1A) is or would be so allowable] , it is to be allowed as a deduction in calculating the participator's ring fence income.

F26 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F26 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F27 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) In this Chapter—

• “abandonment guarantee” has the same meaning as it has for the purposes of [F28 section 3 of OTA 1975] (see section 104 of [F29 FA 1991 ] ), and

• “the guarantor” and “the relevant participator” have the same meaning as in section 104 of that Act.

Textual Amendments

F23 S. 292 heading substituted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 18(4)

F24 S. 292(1A) inserted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 2(2)(a)

F25 Words in s. 292(2) substituted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 2(2)(b)

F26 S. 292(3)(4) omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 7(2)

F27 S. 292(5) omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 18(2)

F28 Words in s. 292(6) substituted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 18(3)(a)

F29 Words in s. 292(6) substituted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 18(3)(b)

F30 293 Relief for reimbursement expenditure under abandonment guarantees U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F30 S. 293 omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 7(3)

F31 294 Payment under abandonment guarantee not immediately applied U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F31 Ss. 294, 295 omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 19

F31 295 Amounts excluded from section 293(1) U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F31 Ss. 294, 295 omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 19

Abandonment expenditure U.K.

296 [F32 Introduction to section 297] U.K.

(1) [F33 Section 297 applies ] if—

(a) paragraph 2A of Schedule 5 to OTA 1975 applies, F34 ..., and

(b) the default payment falls (in whole or part) to be attributed to the contributing participator under paragraph 2A(2) of that Schedule [F35 , or would fall to be so attributed if a claim under paragraph 2A(2) of that Schedule were made] .

[F36 (1A) The condition in subsection (1)(b) is to be treated as met for the purposes of this section if it would be met but for the fact that the contributing participator is (or was) a participator in an oil field that is a non-taxable oil field within the meaning of Part 3 of FA 1993 (see section 185 of that Act).]

(2) In section 297 “the additional abandonment expenditure” means the amount which is [F37 or would be ] attributed to the contributing participator as mentioned in subsection (1)(b) (whether representing the whole or only part of the default payment).

(3) In this Chapter “default payment”, “the defaulter” and “contributing participator” have the same meaning as in paragraph 2A of Schedule 5 to OTA 1975.

Textual Amendments

F32 S. 296 heading substituted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 20(b)

F33 Words in s. 296(1) substituted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 20(a)

F34 Words in s. 296(1)(a) omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 2(3)(a)

F35 Words in s. 296(1)(b) inserted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 2(3)(b)

F36 S. 296(1A) inserted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 2(3)(c)

F37 Words in s. 296(2) inserted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 2(3)(d)

297 Relief for expenditure incurred by a participator in meeting defaulter's abandonment expenditure U.K.

(1) Relief by way of capital allowance, or a deduction in calculating ring fence income, is to be available to the contributing participator in respect of the additional abandonment expenditure if any such relief or deduction would have been available to the defaulter if—

(a) the defaulter had incurred the additional abandonment expenditure, and

(b) at the time that that expenditure was incurred the defaulter continued to carry on a ring fence trade.

(2) The basis of qualification for or entitlement to any relief or deduction which is available to the contributing participator under this section is to be determined on the assumption that the conditions in subsection (1)(a) and (b) are met.

(3) But, subject to subsection (2), any such relief or deduction is to be available in the same way as if the additional abandonment expenditure had been incurred by the contributing participator for the purposes of the ring fence trade carried on by the contributing participator.

F38 298 Reimbursement by defaulter in respect of certain abandonment expenditure U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F38 S. 298 omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 10

[F39 Receipts arising from decommissioning U.K.

Textual Amendments

F39 S. 298A and cross-heading inserted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 21

298A Receipts arising from decommissioning U.K.

(1) This section applies if—

(a) a company that is or has been carrying on a ring fence trade (“the defaulter”) has defaulted on a liability under—

(i) a relevant agreement, or

(ii) an abandonment programme,

to make a payment towards decommissioning expenditure,

(b) another company that is or has been carrying on a ring fence trade (“the contributing company”) pays an amount (“the relevant contribution”) in or towards meeting the whole or part of the default, and

(c) the amount of the relevant contribution is less than the sum of the amounts within subsection (2).

(2) The amounts within this subsection are—

(a) any payments made (directly or indirectly) to the contributing company by the guarantor under an abandonment guarantee as a result of the defaulter defaulting on the liability,

(b) any reimbursement payments, and

(c) any relief from tax which the contributing company obtains in respect of the relevant contribution.

(3) The difference between—

(a) the sum of the amounts within subsection (2), and

(b) the relevant contribution,

(“the relevant difference”) is to be treated as a receipt (in the nature of income) of the contributing company's ring fence trade for the relevant accounting period (see subsection (4)).

(4) “The relevant accounting period” means the accounting period that includes the day on which the Secretary of State certifies that the relevant abandonment programme has been satisfactorily completed (“the certification date”).

This is subject to subsections (5) and (6).

(5) If the contributing company has ceased to carry on the ring fence trade before the certification date, “the relevant accounting period” is the last accounting period of the trade.

(6) If the contributing company has ceased to be within the charge to corporation tax in respect of the ring fence trade before the certification date, “the relevant accounting period” is the accounting period during or at the end of which the contributing company ceased to be within the charge to corporation tax in respect of the trade.

(7) The relevant difference is to be determined—

(a) in a case where subsection (5) or (6) applies, at the end of the calendar year in which the certification date falls, and

(b) in any other case, at the end of the relevant accounting period.

(8) In a case where subsection (5) or (6) applies, any corporation tax chargeable for the relevant accounting period by virtue of this section is due and payable as if it were corporation tax for an accounting period beginning with the certification date.

(9) Any additional assessment to corporation tax required in order to take account of a receipt arising under this section may be made at any time not later than 4 years after the end of the calendar year in which the certification date falls.

(10) In this section—

• “abandonment programme” means an abandonment programme approved under Part 4 of the Petroleum Act 1998 (including such a programme as revised),

• “decommissioning expenditure” has the meaning given by section 330C,

• “reimbursement payment” means any payment made to the contributing company by the defaulter in reimbursing the contributing company in respect of, or otherwise making good to the contributing company, the whole or any part of the relevant contribution,

• “the relevant abandonment programme” means the abandonment programme in respect of which the decommissioning expenditure mentioned in subsection (1)(a) was incurred, and

• “relevant agreement” has the meaning given by section 104(5)(a) of FA 1991.]

Deduction of PRT in calculating income for corporation tax purposes U.K.

299 Deduction of PRT in calculating income for corporation tax purposes U.K.

(1) This section applies if a participator in an oil field has paid any petroleum revenue tax with which the participator was chargeable for a chargeable period.

(2) In calculating for corporation tax the amount of the participator's income arising from oil extraction activities or oil rights in the relevant accounting period, there is to be deducted an amount equal to that petroleum revenue tax.

(3) There are to be made all such adjustments of assessments to corporation tax as are required in order to give effect to subsection (2).

(4) In this section “the relevant accounting period”, in relation to any petroleum revenue tax paid by a company, means—

(a) the accounting period of the company in or at the end of which the chargeable period for which that tax was charged ends, or

(b) if that chargeable period ends after the accounting period of the company in or at the end of which the company—

(i) ceases to carry on the trade giving rise to the income referred to above, or

(ii) ceases to be within the charge to corporation tax in respect of the trade,

that accounting period.

300 Effect of repayment of PRT: general rule U.K.

(1) This section applies if some or all of the petroleum revenue tax in respect of which a deduction has been made under section 299(2) is subsequently repaid.

(2) The deduction is to be reduced or extinguished accordingly.

(3) Any additional assessment to corporation tax required in order to give effect to subsection (2) may be made at any time not later than 4 years after the end of the calendar year in which the petroleum revenue tax was repaid.

(4) This section is subject to section 301.

301 Effect of repayment of PRT: special rule U.K.

(1) This section applies if, in a case where paragraph 17 of Schedule 2 to OTA 1975 applies, an amount of petroleum revenue tax in respect of which a deduction has been made under section 299(2) is repaid as a result of an assessment under that Schedule or an amendment of such an assessment.

(2) As regards so much of that repayment as constitutes the appropriate repayment—

(a) section 300 does not apply, and

(b) the following provisions apply in relation to the company which is entitled to the repayment.

(3) In calculating for corporation tax the amount of the company's income arising in the relevant accounting period from oil extraction activities or oil rights there is to be added an amount equal to the appropriate repayment (but this is subject to subsections (4) and (5)).

(4) Subsection (5) applies if—

(a) two or more carried back losses give rise to the appropriate repayment,

(b) the operative chargeable period in relation to each of the carried back losses is not the same, and

(c) if this section were applied separately in relation to each of the carried back losses there would be more than one relevant accounting period.

(5) The appropriate repayment is to be treated as apportioned between each of the relevant accounting periods mentioned in subsection (4)(c) in such a way as to secure that the amount added as a result of subsection (3) in relation to each of those relevant accounting periods is what it would have been if—

(a) relief for each of the carried back losses for which there is a different operative chargeable period had been given by a separate assessment or amendment of an assessment under Schedule 2 to OTA 1975, and

(b) relief for a carried back loss accruing in an earlier chargeable period had been so given before relief for a carried back loss accruing in a later chargeable period.

(6) Any additional assessment to corporation tax required in order to give effect to the addition of an amount as a result of subsection (3) may be made at any time not later than 4 years after the end of the calendar year in which the repayment of petroleum revenue tax comprising the appropriate repayment is made.

(7) In this section—

• “allowable loss” has the same meaning as in Part 1 of OTA 1975 (see section 2 of that Act),

• “the appropriate repayment” has the meaning given by paragraph 17(2) of Schedule 2 to that Act,

• “carried back loss”, in relation to the appropriate repayment, means an allowable loss—

  (a)

  which falls within paragraph 17(1)(a) of Schedule 2 to OTA 1975, and

  (b)

  which (alone or together with one or more other carried back losses) gives rise to the appropriate repayment,

• “the operative chargeable period”, in relation to a carried back loss, means the chargeable period in which the loss accrued, and

• “the relevant accounting period”, in relation to the company which is entitled to the appropriate repayment, means—

  (a)

  the accounting period in or at the end of which the operative chargeable period ends,

  (b)

  if the company ceases to carry on its ring fence trade before the end of the operative chargeable period, the last accounting period of that trade, or

  (c)

  if the company ceases to be within the charge to corporation tax in respect of that trade before the end of the operative chargeable period, the accounting period during or at the end of which the company ceased to be within the charge to corporation tax in respect of that trade.

Interest on repayment of PRT or APRT U.K.

302 Interest on repayment of PRT or APRT U.K.

(1) Subsection (3) applies if any amount of petroleum revenue tax paid by a participator in an oil field is, under any provision of Part 1 of OTA 1975, repaid to the participator with interest.

(2) Subsection (3) also applies if interest is paid to a participator under paragraph 10(4) of Schedule 19 to FA 1982 (interest on advance petroleum revenue tax which becomes repayable).

(3) The interest paid is to be disregarded in calculating the participator's income for corporation tax purposes.

Relief U.K.

303 Management expenses U.K.

No deduction under section 1219 of CTA 2009 (expenses of management of a company's investment business) is to be allowed from a company's ring fence profits.

[F40 303A Introduction to sections 303B to 303D: post-1 April 2017 non-decommissioning losses of ring fence trades U.K.

(1) This section has effect for the purposes of sections 303B to 303D.

(2) A loss made by a company in a ring fence trade is a “non-decommissioning loss” so far as it is not attributable to expenditure which is relevant expenditure in relation to a decommissioning relief agreement.

(3) Where a company makes a loss for an accounting period in a ring fence trade, the amount (if any) of that loss that is “attributable to” expenditure which is relevant expenditure in relation to a decommissioning relief agreement is equal to—

(a) the total amount of such expenditure brought into account in calculating that loss, or

(b) if lower, the amount of the loss.

(4) Expenditure is “relevant expenditure” in relation to a decommissioning relief agreement if it is decommissioning expenditure (as defined in section 81 of FA 2013) to which the provision of the agreement described in section 80(2)(b) of that Act relates.

In this subsection the reference to section 81 of FA 2013 is to that section as it has effect when the agreement in question is made.

(5) In this section “decommissioning relief agreement” has the meaning given by section 80 of FA 2013.

Textual Amendments

F40 Ss. 303A-303D inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 48

303B Carry forward of losses against subsequent profits U.K.

(1) This section applies if—

(a) in an accounting period beginning on or after 1 April 2017 (“the loss-making period”) a company makes a non-decommissioning loss in a ring fence trade,

(b) relief under—

• section 37 or 42, or

• Part 5 (group relief),

is not given for an amount of the loss (“the unrelieved amount”), and

(c) the company continues to carry on the ring fence trade in the next accounting period (“the later period”).

(2) The unrelieved amount is carried forward to the later period.

(3) Relief for the unrelieved amount is given to the company in the later period if the company makes a profit in the trade for the later period.

(4) The relief is given by reducing the profits of the trade in the later period by the unrelieved amount.

(5) Relief under this section is subject to restriction or modification in accordance with the provisions of the Corporation Tax Acts.

Textual Amendments

F40 Ss. 303A-303D inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 48

303C Excess carried forward losses: relief against total profits U.K.

(1) This section applies if—

(a) an amount of a non-decommissioning loss made in a ring fence trade is carried forward to an accounting period of a company (“the later period”) under section 303B(2) or 303D(3), and

(b) any of that amount (“the unrelieved amount”) is not deducted under section 303B(4) or 303D(5) (as the case may be) from the company's profits of the trade (if any) of the later period.

(2) The company may make a claim for relief to be given for the unrelieved amount under this section (but see subsection (4)).

(3) If the company makes a claim, the relief is given by deducting the unrelieved amount, or any part of it specified in the claim, from the company's total profits of the later period.

(4) The company may not make a claim if—

(a) the ring fence trade became small or negligible in the loss-making period or any intervening period,

(b) relief under section 37 was unavailable for the non-decommissioning loss by reason of section 37(5) or 44, or

(c) relief under section 37 would be unavailable by reason of section 44 for a loss (assuming there was one) made in the ring fence trade in the later period or any intervening period.

(5) In subsection (4)—

• “intervening period” means an accounting period of the company which begins after the loss-making period and before the later period, and

• “the loss-making period” means the accounting period of the company in which the non-decommissioning loss was made.

(6) A claim under this section must be made—

(a) within the period of two years after the end of the later period, or

(b) within such further period as an officer of Revenue and Customs may allow.

(7) Relief under this section is subject to restriction or modification in accordance with the provisions of the Corporation Tax Acts.

Textual Amendments

F40 Ss. 303A-303D inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 48

303D Further carry forward against subsequent profits of loss not fully used U.K.

(1) This section applies if—

(a) an amount of a loss made in a ring fence trade is carried forward to an accounting period (“the later period”) of a company under section 303B(2) or subsection (3) of this section,

(b) any of that amount is unrelieved in the later period, and

(c) the company continues to carry on the ring fence trade in the accounting period (“the further period”) after the later period.

(2) An amount carried forward as mentioned in subsection (1)(a) is “unrelieved in the later period” so far as it is not—

(a) deducted under section 303B(4) or subsection (5) of this section from the company's profit (if any) of the later period,

(b) deducted from the company's total profits of the later period on a claim under section 303C, or

(c) surrendered by way of group relief for carried-forward losses under Part 5A of CTA 2010.

(3) So much of the amount mentioned in subsection (1)(a) as is unrelieved in the later period is carried forward to the further period.

(4) Relief for the amount carried forward under subsection (3) (“the remaining carried forward amount”) is given to the company in the further period if the company has a profit in the trade for that period.

(5) The relief is given by reducing the profits of the trade of the further period by the remaining carried forward amount.

(6) Relief under this section is subject to restriction or modification in accordance with the provisions of the Corporation Tax Acts.]

Textual Amendments

F40 Ss. 303A-303D inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 48

304 Losses U.K.

(1) Relief in respect of a loss incurred by a company may not be given under section 37 (relief for trade losses against total profits) against that company's ring fence profits except so far as the loss arises from oil extraction activities or from oil rights.

[F41 (1A) Relief in respect of a loss incurred by a company may not be given against that company's ring fence profits under any provision listed in subsection (1B).

(1B) The provisions are—

(a) section 753 of CTA 2009 (non-trading losses on intangible fixed assets);

(b) section 45A (carry forward of trade loss against total profits);

(c) section 62(3) (relief for losses made in UK property business).]

(2) Subsection (5) applies if conditions A and B are met.

(3) Condition A is that a company incurs a loss in an accounting period in activities (“separate activities”) which, for that or any subsequent accounting period, are treated by section 279 as a separate trade for the purposes of the charge to corporation tax on income.

(4) Condition B is that any of the company's trading income in any subsequent accounting period is derived from activities (“related activities”) which are not part of the separate activities but which would together with those activities constitute a single trade, were it not for section 279.

(5) The loss may be used under section 45 [F42 45B, 303B(4) or 303D(5)] (carry forward of trade loss against subsequent trade profits) to reduce so much of the company's trading income in any subsequent accounting period as is derived from the related activities.

(6) Subsection (5) applies despite anything in section 279.

[F43 (7) A deduction in respect of a loss made in a ring fence trade is to be ignored for the purposes of section 269ZB (restriction on deductions from trading profits) if the deduction is under—

(a) section 45 (carry forward of pre-1 April 2017 trade loss against subsequent profits), or

(b) section 45B (carry forward of post-1 April 2017 trade loss against total profits).]

Textual Amendments

F41 S. 304(1A)(1B) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 49(2)

F42 Words in s. 304(5) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 49(3)

F43 S. 304(7) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 49(4)

305 Group relief [F44 and group relief for carried-forward losses] U.K.

(1) On a claim for group relief made by a claimant company in relation to a surrendering company, group relief may not be allowed against the claimant company's ring fence profits except so far as the claim relates to losses incurred by the surrendering company that arose from oil extraction activities or from oil rights.

[F45 (1A) On a claim under Chapter 3 of Part 5A, group relief for carried-forward losses may not be allowed against the claimant company's ring fence profits.]

(2) In section 105 (restriction on surrender of losses etc within section 99(1)(d) to (g)) the references to the surrendering company's gross profits of the surrender period do not include the company's relevant ring fence profits for that period.

(3) The company's “relevant ring fence profits” for that period are—

(a) if for that period there are no qualifying charitable donations made by the company that are allowable under Part 6 (charitable donations relief), the company's ring fence profits for that period, or

(b) otherwise, so much of the company's ring fence profits for that period as exceeds the amount of the qualifying charitable donations made by the company that are allowable under section 189 for that period.

[F46 (4) In this section—

• “claimant company” is to be read in accordance with Part 5 (see section 188) or Part 5A (see sections 188CB(2) and 188CC(2)), as the case requires;

• “surrendering company” is to be read in accordance with Part 5 (see section 188).]

Textual Amendments

F44 Words in s. 305 heading inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 50(2)

F45 S. 305(1A) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 50(3)

F46 S. 305(4) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 50(4)

306 Capital allowances U.K.

(1) A capital allowance may not to any extent be given effect under section 259 or 260 of CAA 2001 (special leasing) by deduction from a company's ring fence profits.

(2) But subsection (1) does not apply to a capital allowance which falls to be made to a company for any accounting period in respect of an asset which—

(a) is used in the relevant accounting period by a company associated with it, and

(b) is so used in carrying on oil extraction activities.

(3) “The relevant accounting period” means that for which the allowance in question first falls to be made to the company (whether or not it can to any extent be given effect in that period under section 259 of CAA 2001).

Chapter 5 U.K. Ring fence expenditure supplement

Introduction U.K.

307 Overview of Chapter U.K.

(1) This Chapter entitles a company carrying on a ring fence trade, on making a claim in respect of an accounting period, to a supplement in respect of—

(a) qualifying pre-commencement expenditure incurred before the trade is set up and commenced,

(b) losses incurred in the trade, and

(c) some or all of the supplement allowed in respect of earlier periods.

(2) Sections 308 to 314 make provision about the application and interpretation of this Chapter.

(3) Sections 315 to 320 make provision about supplement in relation to expenditure incurred by the company—

(a) with a view to carrying on a ring fence trade, but

(b) in an accounting period before the company sets up and commences that trade.

(4) Sections 321 to 329 make provision about supplement in relation to losses incurred in carrying on the ring fence trade.

(5) There is a limit (of [F47 10]) on the number of accounting periods in respect of which a company may claim supplement.

(6) In determining the amount of supplement allowable, reductions fall to be made in respect of—

(a) disposal receipts in respect of any asset representing qualifying pre-commencement expenditure.

(b) ring fence losses that could be deducted under section 37 (relief for trade losses against total profits) or section 42 (ring fence trades: further extension of period for relief) from ring fence profits of earlier periods,

[F48 (c) relief given under sections 45, 45B, 303B, 303C and 303D for ring fence losses carried forward from earlier periods,]

(d) unrelieved group ring fence profits.

Textual Amendments

F47 Word in s. 307(5) substituted (with effect in accordance with Sch. 11 para. 14 of the amending Act) by Finance Act 2015 (c. 11), Sch. 11 para. 2

F48 S. 307(6)(c) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 51

Application and interpretation U.K.

308 Qualifying companies U.K.

(1) This Chapter applies in relation to any company which—

(a) carries on a ring fence trade, or

(b) is engaged in any activities with a view to carrying on a ring fence trade.

(2) In this Chapter such a company is referred to as a “qualifying company”.

309 Accounting periods U.K.

(1) In this Chapter, in the case of a qualifying company—

• “the commencement period” means the accounting period in which the company sets up and commences its ring fence trade,

• “post-commencement period” means an accounting period beginning on or after 1 January 2006—

  (a)

  which is the commencement period, or

  (b)

  which ends after the commencement period, and

• “pre-commencement period” means an accounting period—

  (a)

  beginning on or after 1 January 2006, and

  (b)

  ending before the commencement period.

(2) For the purposes of this Chapter, a company not within the charge to corporation tax which incurs any expenditure is to be treated as having such accounting periods as it would have if—

(a) it carried on a trade consisting of the activities in respect of which the expenditure is incurred, and

(b) it had started to carry on that trade when it started to carry on the activities in the course of which the expenditure is incurred.

(3) In the case of an accounting period (a “straddling period”) of a qualifying company beginning before 1 January 2006 and ending on or after that date—

(a) so much of the straddling period as falls before 1 January 2006, and

(b) so much of the straddling period as falls on or after that date,

are treated as separate accounting periods for the purposes of this Chapter.

(4) But special provision is made elsewhere in this [F49 Chapter—

(a) in relation to straddling periods (see sections 311, 324 and 327(4) to (7)), and

(b) in relation to accounting periods which begin before, but end on or after, 5 December 2013 (see sections 311(1C), 318A and 328A).]

Textual Amendments

F49 Words in s. 309(4) substituted (with effect in accordance with Sch. 11 para. 14 of the amending Act) by Finance Act 2015 (c. 11), Sch. 11 para. 3

310 The relevant percentage U.K.

(1) For the purposes of this Chapter, the relevant percentage for an accounting period is [F50 10%].

(2) The Treasury may by order vary the percentage for the time being specified in subsection (1) for such accounting periods as may be specified in the order.

Textual Amendments

F50 Figure in s. 310(1) substituted (with effect in accordance with art. 1(2) of the amending S.I.) by The Corporation Tax (Variation of the Relevant Percentage) Order 2011 (S.I. 2011/2885), arts. 1(2), 2

311 Limit on number [F51 etc] of accounting periods for which supplement may be claimed U.K.

(1) A company may claim supplement under this Chapter in respect of no more than [F52 10] accounting periods.

[F53 (1A) In this Chapter—

• “the initial 6 periods” means the first 6 accounting periods (in chronological order) for which the company claims supplement under this Chapter;

• “the additional 4 periods” means the 4 accounting periods after the initial 6 periods for which the company claims supplement under this Chapter.

(1B) None of the additional 4 periods may be accounting periods beginning before 5 December 2013.

(1C) But, where—

(a) a company has an accounting period which begins before 5 December 2013 and ends on or after that date, and

(b) that accounting period falls after the initial 6 accounting periods,

so much of that accounting period as falls before 5 December 2013 and so much of it as falls on or after that date are treated as separate accounting periods for the purposes of this Chapter.]

(2) The accounting periods in respect of which claims are made need not be consecutive.

(3) A claim for supplement by the company under Schedule 19B to ICTA (exploration expenditure supplement) in respect of an accounting period is to count for the purposes of this section as a claim for supplement under this Chapter in respect of that accounting period.

(4) But, if the company makes a claim for supplement under this Chapter in respect of the deemed accounting period, any claim for supplement by the company under Schedule 19B to ICTA in respect of the Schedule 19B deemed accounting period is to be ignored for the purposes of this section.

(5) In subsection (4)—

• “the deemed accounting period” means the deemed accounting period under section 309(3) beginning on 1 January 2006, and

• “the Schedule 19B deemed accounting period” means the deemed accounting period under paragraph 3(3) of Schedule 19B to ICTA ending before 1 January 2006.

Textual Amendments

F51 Word in s. 311 heading inserted (with effect in accordance with Sch. 11 para. 14 of the amending Act) by Finance Act 2015 (c. 11), Sch. 11 para. 4(4)

F52 Word in s. 311(1) substituted (with effect in accordance with Sch. 11 para. 14 of the amending Act) by Finance Act 2015 (c. 11), Sch. 11 para. 4(2)

F53 S. 311(1A)-(1C) inserted (with effect in accordance with Sch. 11 para. 14 of the amending Act) by Finance Act 2015 (c. 11), Sch. 11 para. 4(3)

312 Qualifying pre-commencement expenditure U.K.

(1) For the purposes of this Chapter, expenditure is “qualifying pre-commencement expenditure” if it meets each of conditions A to D.

(2) Condition A is that the expenditure is incurred on or after 1 January 2006.

(3) Condition B is that the expenditure is incurred in the course of oil extraction activities.

(4) Condition C is that the expenditure is incurred by a company with a view to carrying on a ring fence trade but before the company sets up and commences the ring fence trade.

(5) Condition D is that the expenditure—

(a) is subsequently allowable as a deduction in calculating the profits of the ring fence trade for the commencement period (whether or not any part of it is so allowable for any post-commencement period), or

(b) is relevant R&D expenditure incurred by an SME.

(6) For the purposes of this section, expenditure incurred by a company is “relevant R&D expenditure incurred by an SME” if—

(a) the company makes an election under section 1045 of CTA 2009 (alternative treatment for pre-trading expenditure: deemed trading loss) in respect of that expenditure, but

(b) the company does not make a claim for an R&D tax credit under section 1054 of that Act in respect of that expenditure.

(7) In the case of any qualifying pre-commencement expenditure which is relevant R&D expenditure incurred by an SME, the amount of that expenditure is treated for the purposes of this Chapter as being equal to 150% of its actual amount.

F54 (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F54 (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F54 S. 312(8)(9) omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 24(2)

313 Unrelieved group ring fence profits for accounting periods U.K.

(1) There is an amount of unrelieved group ring fence profits for an accounting period of a qualifying company (“company Q”) if—

(a) the company and any other company (“company X”) are members of the same group, and

(b) company X has an amount of taxable ring fence profits (see section 314) for a corresponding accounting period.

(2) An accounting period of company X corresponds to an accounting period of company Q if—

(a) it coincides with, or falls wholly within, the accounting period of company Q, or

(b) it falls partly within the accounting period of company Q.

(3) If an accounting period of company X—

(a) coincides with an accounting period of company Q, or

(b) falls wholly within an accounting period of company Q,

there is, for the accounting period of company Q, an amount of unrelieved group ring fence profits equal to the whole of company X's taxable ring fence profits for its accounting period.

(4) If an accounting period of company X falls partly within an accounting period of company Q—

(a) there is an amount of unrelieved group ring fence profits for the accounting period of company Q, and

(b) that amount is an amount equal to the part of company X's taxable ring fence profits for its accounting period that is attributable, on an apportionment in accordance with section 1172, to the part of that period which falls within the accounting period of company Q.

(5) For the purposes of this section, two companies are members of the same group if they are members of the same group of companies within the meaning of Part 5 (group relief).

(6) This section applies for the purposes of this Chapter.

314 Taxable ring fence profits for an accounting period U.K.

For the purposes of this Chapter, a company has taxable ring fence profits for an accounting period if it has an amount of ring fence profits which is chargeable to corporation tax for that accounting period after any group relief claimed under Part 5 (group relief).

Pre-commencement supplement U.K.

315 Supplement in respect of a pre-commencement accounting period U.K.

(1) If—

(a) a qualifying company incurs qualifying pre-commencement expenditure in respect of a ring fence trade, and

(b) the expenditure is incurred before the commencement period,

the company may claim supplement under this section (“pre-commencement supplement”) in respect of one or more pre-commencement periods.

(2) Any pre-commencement supplement allowed on a claim in respect of a pre-commencement period is to be treated as expenditure—

(a) which is incurred by the company in the commencement period, and

(b) which is allowable as a deduction in calculating the profits of the ring fence trade for that period.

(3) The amount of the supplement for any pre-commencement period in respect of which a claim under this section is made is the relevant percentage for that period of the reference amount for that period.

(4) If the pre-commencement period is a period of less than 12 months, the amount of the supplement for the period (apart from this subsection) is to be reduced proportionally.

(5) Sections 316 to 319 have effect for the purpose of determining the reference amount for a pre-commencement period.

316 The mixed pool of qualifying pre-commencement expenditure and supplement previously allowed U.K.

(1) For the purpose of determining the amount of any pre-commencement supplement, a qualifying company is to be taken to have had, at all times in the pre-commencement periods of the company, a continuing mixed pool of—

(a) the relevant amount (if any) which the company carries forward under Schedule 19B to ICTA,

(b) qualifying pre-commencement expenditure, and

(c) pre-commencement supplement.

(2) The pool is to be taken to have consisted of—

(a) the relevant amount (if any) which the company carries forward under Schedule 19B to ICTA,

(b) the company's qualifying pre-commencement expenditure, allocated to the pool for each pre-commencement period in accordance with subsection (3), and

(c) the company's pre-commencement supplement, allocated to the pool for each pre-commencement period in accordance with subsection (4).

(3) To allocate qualifying pre-commencement expenditure to the pool for any pre-commencement period, take the following steps—

• Step 1

  Count as eligible expenditure for that period so much of the qualifying pre-commencement expenditure mentioned in section 315(1) as was incurred in that period.

• Step 2

  Find the total of all the eligible expenditure for that period (amount E).

• Step 3

  If section 317 applies, reduce amount E in accordance with that section.

• Step 4

  If section 318 applies, reduce (or, as the case may be, further reduce) amount E in accordance with that section.

And so much of amount E as remains after making those reductions is to be taken to have been added to the pool in that period

(4) If any pre-commencement supplement is allowed on a claim in respect of a pre-commencement period, the amount of that supplement is to be taken to have been added to the pool in that period.

(5) In this section references to the relevant amount (if any) which the company carries forward under Schedule 19B to ICTA are to the amount (if any) in its mixed pool for the purposes of Part 3 of Schedule 19B to ICTA immediately before 1 January 2006.

[F55 (6) This section is subject to section 318A (adjustment of pool to remove pre-2013 expenditure after the initial 6 periods).]

Textual Amendments

F55 S. 316(6) inserted (with effect in accordance with Sch. 11 para. 14 of the amending Act) by Finance Act 2015 (c. 11), Sch. 11 para. 5

317 Reduction in respect of disposal receipts under CAA 2001 U.K.

(1) This section applies in the case of the qualifying company if—

(a) it incurs qualifying pre-commencement expenditure in respect of a ring fence trade in any pre-commencement period,

(b) it would, on the relevant assumption, be entitled to an allowance under any provision of CAA 2001 in respect of that expenditure,

(c) an event occurs in relation to any asset representing the expenditure in any pre-commencement period, and

(d) the event would, on the relevant assumption, require a disposal value (the “deductible amount”) to be brought into account under any provision of CAA 2001 for any pre-commencement period.

(2) The relevant assumption is that the company was carrying on the ring fence trade—

(a) when the expenditure was incurred, and

(b) when the event giving rise to the disposal value occurred.

(3) For the purpose of allocating qualifying pre-commencement expenditure to the pool for each pre-commencement period—

(a) find the total amount of the disposal values in the case of all such events (amount D), and

(b) taking later periods before earlier periods, reduce (but not below nil) amount E for any pre-commencement period by setting against it so much of amount D as does not fall to be set against amount E for a later pre-commencement period.

[F56 (4) This section is subject to section 318A(5) (exclusion of deductible amounts in respect of pre-2013 expenditure when determining pre-commencement supplement for additional 4 periods).]

Textual Amendments

F56 S. 317(4) inserted (with effect in accordance with Sch. 11 para. 14 of the amending Act) by Finance Act 2015 (c. 11), Sch. 11 para. 6

318 Reduction in respect of unrelieved group ring fence profits U.K.

(1) This section applies if there is an amount of unrelieved group ring fence profits for a pre-commencement period.

(2) For the purpose of allocating qualifying pre-commencement expenditure to the pool for that period—

(a) find so much (if any) of amount E for that period as remains after any reduction falling to be made under section 317, and

(b) reduce that amount (but not below nil) by setting against it a sum equal to the aggregate of the amounts of unrelieved group ring fence profits for the period.

[F57 318A Adjustment of pool to remove pre-2013 expenditure after the initial 6 periods U.K.

(1) This section applies for the purposes of determining the amount of any pre-commencement supplement on any claim made by a company for supplement under this Chapter in respect of an accounting period which is one of the additional 4 periods.

(2) The pool which (under section 316) the company is to be taken to have had, at all times in the pre-commencement periods of the company, is to be taken to have been reduced at the time specified in subsection (4).

(3) The amount of the reduction is the sum of—

(a) the relevant amount (if any) which the company carries forward under Schedule 19B to ICTA,

(b) the total amount of qualifying pre-commencement expenditure allocated to the pool for pre-commencement periods beginning before 5 December 2013, and

(c) the total amount of the company's pre-commencement supplement allocated to the pool for pre-commencement periods beginning before that date.

(4) The time is—

(a) immediately after the last of the initial 6 periods, or

(b) if later, 5 December 2013.

(5) Subsection (3) of section 317 (reduction in respect of disposal receipts under CAA 2001) has effect as if the reference in paragraph (a) of that subsection to “all such events” did not include events occurring in relation to an asset representing expenditure incurred before 5 December 2013.

(6) Where a company has a pre-commencement period (“the straddling 2013 period”) which begins before 5 December 2013 and ends on or after that date, for the purposes of making a reduction under this section—

(a) so much of the straddling 2013 period as falls before 5 December 2013 (“the pre-2013 period”), and

(b) so much of that period as falls on or after that date (“the post-2013 period”),

are to be treated as separate pre-commencement periods.

(7) Accordingly, any amount of qualifying pre-commencement expenditure, and any amount of the company's pre-commencement supplement, allocated to the pool for the straddling 2013 period is to be—

(a) apportioned between the pre-2013 period and the post-2013 period in proportion to the number of days in each, and

(b) treated as allocated to the pool in question for the period in question (rather than the straddling 2013 period).

(8) If the basis of the apportionment in subsection (7) would work unjustly or unreasonably in the company's case, the company may elect for the apportionment to be made on another basis that is just and reasonable and specified in the election.]

Textual Amendments

F57 S. 318A inserted (with effect in accordance with Sch. 11 para. 14 of the amending Act) by Finance Act 2015 (c. 11), Sch. 11 para. 7

319 The reference amount for a pre-commencement period U.K.

For the purposes of section 315, the reference amount for a pre-commencement period is the amount in the pool at the end of the period—

(a) after the addition to the pool of any qualifying pre-commencement expenditure allocated to the pool for that period in accordance with section 316(3), but

(b) before determining, and adding to the pool, the amount of any pre-commencement supplement claimed in respect of the period.

320 Claims for pre-commencement supplement U.K.

(1) Any claim for pre-commencement supplement in respect of a pre-commencement period must be made as a claim for the commencement period.

(2) Paragraph 74 of Schedule 18 to FA 1998 (company tax returns etc: time limit for claims for group relief) applies in relation to a claim for pre-commencement supplement as it applies in relation to a claim for group relief.

Post-commencement supplement U.K.

321 Supplement in respect of a post-commencement period U.K.

(1) A qualifying company which incurs a ring fence loss (see section 323) in any post-commencement period may claim supplement under this section (“post-commencement supplement”) in respect of—

(a) that period, or

(b) any subsequent accounting period in which it carries on its ring fence trade.

(2) Any post-commencement supplement allowed on a claim in respect of a post-commencement period [F58 beginning before 1 April 2017] is to be treated for the purposes of the Corporation Tax Acts (other than the post-commencement supplement provisions or Part 4 of Schedule 19B to ICTA) as if it were a loss—

(a) which is incurred in carrying on the ring fence trade in that period, and

(b) which falls in whole to be used under section 45 (carry forward of [F59 pre-1 April 2017] trade loss against subsequent trade profits) to reduce trading income from the ring fence trade in succeeding accounting periods.

[F60 (2A) Any post-commencement supplement allowed on a claim in respect of a post-commencement period beginning on or after 1 April 2017 is to be treated for the purposes of the Corporation Tax Acts (other than the post-commencement supplement provisions or Part 4 of Schedule 19B to ICTA) as if it were a loss—

(a) which is incurred in carrying on the ring fence trade in that period, and

(b) which falls in whole to be used under section 45B (carry forward of post-1 April 2017 trade loss against subsequent trade profits) to reduce trading income from the ring fence trade in succeeding accounting periods.]

(3) Paragraph 74 of Schedule 18 to FA 1998 (company tax returns etc: time limit for claims for group relief) applies in relation to a claim for post-commencement supplement as it applies in relation to a claim for group relief.

(4) In this Chapter “the post-commencement supplement provisions” means this section and sections 322 to 329.

Textual Amendments

F58 Words in s. 321(2) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 52(2)(a)

F59 Words in s. 321(2)(b) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 52(2)(b)

F60 S. 321(2A) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 52(3)

322 Amount of post-commencement supplement for a post-commencement period U.K.

(1) The amount of the post-commencement supplement for any post-commencement period in respect of which a claim under section 321 is made is the relevant percentage for that period of the reference amount for that period.

(2) If the post-commencement period is a period of less than 12 months, the amount of the supplement for the period (apart from this subsection) is to be reduced proportionally.

(3) Sections 325 to 329 have effect for the purpose of determining the reference amount for a post-commencement period.

323 Ring fence losses U.K.

(1) If—

(a) in any post-commencement period (“the period of the loss”) a qualifying company carrying on a ring fence trade incurs a loss in the trade, and

[F61 (b) some or all of the loss falls to be carried forward to the following accounting period under section 45, 45B or 303B (carry forward of trade losses against subsequent profits)]

so much of the loss as falls to be so [F62 carried forward] is a “ring fence loss” of the company.

(2) In determining for the purposes of the post-commencement supplement provisions how much of a loss incurred in a ring fence trade falls to be [F63 carried forward] as mentioned in subsection (1)(b), the following assumptions are to be made.

(3) The first assumption is that every claim is made that could be made by the company under section 37 (relief for trade losses against total profits) to deduct losses incurred in the ring fence trade from ring fence profits of earlier post-commencement periods.

(4) The second assumption is that (where appropriate) section 42 (ring fence trades: further extension of period for relief) applies in relation to every such claim under section 37.

(5) This section is subject to section 324 (special rule for straddling periods).

(6) This section has effect for the purposes of the post-commencement supplement provisions.

Textual Amendments

F61 S. 323(1)(b) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 53(2)(a)

F62 Words in s. 323(1) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 53(2)(b)

F63 Words in s. 323(2) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 53(3)

324 Special rule for straddling periods U.K.

(1) This section applies if the period of the loss is the deemed accounting period under section 309(3) beginning on 1 January 2006 (“the deemed accounting period”).

(2) The amount of ring fence loss in the deemed accounting period is determined as follows—

• Step 1

  Calculate so much of the ring fence loss in the straddling period as, for the purposes of Part 4 of Schedule 19B to ICTA, is attributable to qualifying E&A allowances for the straddling period. The amount given by this step is “the qualifying Schedule 19B amount”.

• Step 2

  Calculate so much of the ring fence loss in the straddling period as is attributable to allowances for the straddling period under Part 6 of CAA 2001 in respect of relevant expenditure. For the purposes of this step “relevant expenditure” means expenditure incurred by the company on or after 1 January 2006 which, but for that fact, would be qualifying E&A expenditure for the purposes of Schedule 19B to ICTA. For the purposes of this step a ring fence loss is attributable to those allowances so far as the amount of the loss (less the qualifying Schedule 19B amount) does not exceed the amount of those allowances for that period. The amount given by this step is “the amount of the post-1 January 2006 E&A allowances”.

• Step 3

  Deduct the qualifying Schedule 19B amount and the amount of the post-1 January 2006 E&A allowances from the amount of the ring fence loss in the straddling period.

• Step 4

  Apportion the remaining amount of that loss (if any) to the deemed accounting period in proportion to the number of days in the deemed accounting period that fall in the straddling period. The amount given by this step is “the amount of the apportioned loss”

• Step 5

  The amount of the ring fence loss in the deemed accounting period is the amount of the apportioned loss plus the amount of the post-1 January 2006 E&A allowances.

(3) In this section “the straddling period”, in relation to a qualifying company, means an accounting period of the company—

(a) beginning before 1 January 2006, and

(b) ending on or after that date,

disregarding section 309(3).

(4) In this section references to the ring fence loss in the straddling period are to that loss determined on the assumption that the straddling period is the period of the loss for the purposes of section 323.

(5) This section has effect for the purposes of the post-commencement supplement provisions.

325 The pool of ring fence losses and the pool of non-qualifying Schedule 19B losses U.K.

(1) For the purpose of determining the amount of any post-commencement supplement, a qualifying company is to be taken at all times in its post-commencement periods to have a continuing mixed pool (the “ring fence pool”) of—

(a) the carried forward qualifying Schedule 19B amount (if any),

(b) the company's ring fence losses, and

(c) post-commencement supplement.

(2) The ring fence pool continues even if the amount in it is nil.

(3) For the purpose of determining the amount of any post-commencement supplement, a qualifying company is also to be taken in its post-commencement periods to have a non-qualifying pool consisting of the carried forward non-qualifying Schedule 19B amount.

(4) But the non-qualifying pool ceases to exist when the amount in it is reduced to nil.

(5) In this section—

• “the carried forward qualifying Schedule 19B amount”, in relation to a qualifying company, means the amount in its qualifying pool for the purposes of Part 4 of Schedule 19B to ICTA immediately before 1 January 2006, and

• “the carried forward non-qualifying Schedule 19B amount”, in relation to a qualifying company, means the amount in its non-qualifying pool for the purposes of Part 4 of Schedule 19B to that Act immediately before 1 January 2006.

326 The ring fence pool U.K.

(1) The ring fence pool consists of—

(a) the carried forward qualifying Schedule 19B amount (if any),

(b) the company's ring fence losses, allocated to the pool in accordance with subsection (2)(a), and

(c) the company's post-commencement supplement, allocated to the pool in accordance with subsection (2)(b).

(2) The allocation of ring fence losses and post-commencement supplement to the pool is made as follows—

(a) the amount of a ring fence loss is added to the pool in the period of the loss, and

(b) if any post-commencement supplement is allowed on a claim in respect of a post-commencement period, the amount of that supplement is added to the pool in that period.

(3) The amount in the ring fence pool is subject to reductions in accordance with [F64 sections 327 and 328].

(4) If a reduction in the amount in the ring fence pool falls to be made [F65 under section 327 or 328] in any accounting period, the reduction is to be made—

(a) after the addition to the pool of the amount of any ring fence losses allocated to the pool in that period in accordance with subsection (2)(a), but

(b) before determining, and adding to the pool, the amount of any supplement claimed in respect of the period,

and references to the amount in the pool are to be read accordingly.

(5) In this section “the carried forward qualifying Schedule 19B amount”, in relation to a qualifying company, means the amount in its qualifying pool for the purposes of Part 4 of Schedule 19B to ICTA immediately before 1 January 2006.

[F66 (6) This section is subject to section 328A (adjustment of pool to remove pre-2013 losses after the initial 6 periods).]

Textual Amendments

F64 Words in s. 326(3) substituted (with effect in accordance with Sch. 11 para. 14 of the amending Act) by Finance Act 2015 (c. 11), Sch. 11 para. 8(2)

F65 Words in s. 326(4) inserted (with effect in accordance with Sch. 11 para. 14 of the amending Act) by Finance Act 2015 (c. 11), Sch. 11 para. 8(3)

F66 S. 326(6) inserted (with effect in accordance with Sch. 11 para. 14 of the amending Act) by Finance Act 2015 (c. 11), Sch. 11 para. 8(4)

[F67 327 Reductions in respect of relief for carried-forward ring fence losses U.K.

(1) Reductions are to be made in accordance with this section in a post-commencement period if the relevant amount for the period (see subsection (4)) is not nil.

(2) If the company has a non-qualifying pool, the amount in the non-qualifying pool is to be reduced (but not below nil) by setting against it a sum equal to the relevant amount for the post-commencement period.

(3) If—

(a) any of that sum remains after being so set against the amount in the non-qualifying pool, or

(b) the company does not have a non-qualifying pool,

the amount in the ring fence pool is to be reduced (but not below nil) by setting against it so much of that sum as so remains or (as the case may be) a sum equal to the relevant amount for the post-commencement period.

(4) For the purposes of this section, the relevant amount for a post-commencement period is the sum of—

(a) the amount of any relief given in respect of ring fence losses in the post-commencement period under sections 45, 45B, 303B, 303C and 303D, and

(b) the amount of any relief prevented from being given in respect of ring fence losses in the post-commencement period by claims made under sections 45(4A) and 45B(5).]

Textual Amendments

F67 S. 327 substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 54

328 Reductions in respect of unrelieved group ring fence profits U.K.

(1) If there is an amount of unrelieved group ring fence profits for a post-commencement period, reductions are to be made in that period in accordance with this section.

(2) If, after making any reductions that fall to be made in accordance with section 327, the company does not have a non-qualifying pool, the remaining amount in the ring fence pool is to be reduced (but not below nil) by setting against it a sum equal to the aggregate of the amounts of unrelieved group ring fence profits for the period.

(3) If, after making any reductions that fall to be made in accordance with section 327, the company has an amount in a non-qualifying pool, the amount in that pool is to be reduced (but not below nil) by setting against it a sum equal to the aggregate of the amounts of unrelieved group ring fence profits for the period.

(4) If any of that sum remains after being so set against the amount in the non-qualifying pool, the remaining amount in the ring fence pool is to be reduced (but not below nil) by setting against it so much of that sum as so remains.

(5) For the purposes of this section references to the remaining amount in the ring fence pool are references to so much (if any) of the amount in the ring fence pool as remains after making any reductions that fall to be made in accordance with section 327.

[F68 328A Adjustment of pool to remove pre-2013 losses after the initial 6 periods U.K.

(1) This section applies for the purposes of determining the amount of any post-commencement supplement on any claim in respect of any of the additional 4 periods.

(2) The ring fence pool is to be taken to have been reduced at the time specified in subsection (6).

(3) The amount of the reduction is the amount of the total pre-2013 pool reduced (but not below nil) by the amount of the total pre-2013 reduction.

(4) “The amount of the total pre-2013 pool” means the sum of—

(a) the carried forward qualifying Schedule 19B amount (within the meaning of section 326(5)) which is in the pool at the time specified in subsection (6) (if any),

(b) the total amount of the company's ring fence losses added to the pool in post-commencement periods beginning before 5 December 2013,

(c) if the commencement period begins on or after 5 December 2013, so much of any ring fence loss added to the pool in that period as does not exceed the sum of—

(i) any pre-commencement expenditure added to the pool in a pre-commencement period ending before 5 December 2013, and

(ii) any pre-commencement supplement allowed in respect of such a pre-commencement period, and

(d) the total amount of the company's post-commencement supplement added to the pool in post-commencement periods beginning before that date.

(5) “The amount of the total pre-2013 reduction” means the total amount of the reductions in the ring fence pool falling to be made under section 327 or 328 in post-commencement periods beginning before the time specified in subsection (6).

(6) The time is—

(a) immediately after the last of the 6 initial periods, or

(b) if later, 5 December 2013.

(7) The amount (if any) in the non-qualifying pool under section 325(3) is reduced to nil (and so ceases to exist under section 325(4)).

(8) Section 318A(6) (“the straddling 2013 period”) applies for the purposes of making a reduction under this section as it applies for the purposes of making a reduction under section 318A.

(9) Accordingly—

(a) any ring fence loss of the company added to the pool in the straddling 2013 period is to be apportioned between the pre-2013 period and the post-2013 period in proportion to the number of days in each and treated as allocated to the pool for the period in question;

(b) any amount of the company's post-commencement supplement allocated to the pool for the straddling period is to be apportioned between the pre-2013 period and the post-2013 period in proportion to the number of days in each and treated as allocated to the pool for the period in question;

(c) the total amount of reductions in the ring fence pool falling to be made in the straddling period is apportioned between the pre-2013 period and the post-2013 period in proportion to the number of days in each and treated as a reduction falling to be made in the period in question.

(10) If the basis of the apportionment in subsection (9)(a), (b) or (c) would work unjustly or unreasonably in the company's case, the company may elect for the apportionment to be made on another basis that is just and reasonable and specified in the election.

(11) Once a reduction in the pool has been made under this section—

(a) [F69 no account is to be taken of a loss in determining under section 327(4) the relevant amount for a post-commencement period ] if and to the extent that the loss is represented by the reduction made under this section, and

(b) if and to the extent that losses are represented by the reduction they are to be used under section 45 to reduce any profits of a post-commencement period before [F70 any such profits are reduced by the use under section 45, 45B, 303B, 303C and 303D of ring fence losses that are not represented by the reduction].]

Textual Amendments

F68 S. 328A inserted (with effect in accordance with Sch. 11 para. 14 of the amending Act) by Finance Act 2015 (c. 11), Sch. 11 para. 10

F69 Words in s. 328A(11)(a) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 55(a)

F70 Words in s. 328A(11)(b) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 55(b)

329 The reference amount for a post-commencement period U.K.

For the purposes of section 322 the reference amount for a post-commencement period is so much of the amount in the ring fence pool as remains after making any reductions required by section 327 or 328.

F71 CHAPTER 5A U.K. Extended ring fence expenditure supplement for onshore activities

Textual Amendments

F71 Pt. 8 Ch. 5A repealed (with effect in accordance with Sch. 11 para. 14 of the amending Act) by Finance Act 2015 (c. 11), Sch. 11 para. 13(1)

Introduction U.K.

329A Overview of Chapter U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Application and interpretation U.K.

329B Qualifying companies U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329C Onshore and offshore oil-related activities U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329D Accounting periods and straddling periods U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329E The relevant percentage U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329F Restrictions on accounting periods for which additional supplement may be claimed U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329G Qualifying pre-commencement onshore expenditure U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329H Unrelieved group ring fence profits U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pre-commencement additional supplement U.K.

329I Additional supplement in respect of a pre-commencement accounting period U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329J The mixed pool of qualifying pre-commencement onshore expenditure and supplement previously allowed U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329K Reduction in respect of disposal receipts under CAA 2001 U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329L Reduction in respect of unrelieved group ring fence profits U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329M The reference amount for a pre-commencement period U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Post-commencement additional supplement U.K.

329N Supplement in respect of post-commencement period U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329O Amount of post-commencement additional supplement for a post-commencement period U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329P Onshore ring fence losses U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329Q The onshore ring fence pool U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329R Reductions in respect of utilised onshore ring fence losses U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329S Reductions in respect of unrelieved group ring fence profits U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329T The reference amount for a post-commencement period U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 6 U.K. Supplementary charge in respect of ring fence trades

330 Supplementary charge in respect of ring fence trades U.K.

(1) If a company carries on a ring fence trade in an accounting period, a sum equal to [F72 10%] of its adjusted ring fence profits for that period is to be charged on the company as if it were an amount of corporation tax chargeable on the company.

(2) A company's “adjusted ring fence profits” for an accounting period are the amount which, on the assumption mentioned in subsection (3), would be determined for that period as the [F73 company's ring fence profits] chargeable to corporation tax.

[F74 See also sections 330A and 330B (which provide for the amount of adjusted ring fence profits to be further adjusted where decommissioning expenditure has been taken into account).]

(3) The assumption is that financing costs are left out of account in calculating—

(a) the amount of the profits or loss of any ring fence trade of the company for an accounting period, and

(b) if for any such period the whole or part of any loss relief is surrendered to the company in accordance with section 305(1), the amount of that relief or part.

(4) See also section 331 (meaning of financing costs etc).

[F75 (5) This Chapter is subject to—

(a) Chapter 6A (reduction of supplementary charge: investment allowance),

(b) Chapter 8 (reduction of supplementary charge: onshore allowance), and

(c) Chapter 9 (reduction of supplementary charge: cluster area allowance).]

Textual Amendments

F72 Word in s. 330(1) substituted (with effect in accordance with s. 58(2)-(5) of the amending Act) by Finance Act 2016 (c. 24), s. 58(1)

F73 Words in s. 330(2) substituted (retrospective to 6.12.2011) by Finance Act 2012 (c. 14), s. 182(1)(2)

F74 Words in s. 330(2) inserted (with effect in accordance with Sch. 21 para. 6 of the amending Act) by Finance Act 2012 (c. 14), Sch. 21 para. 2

F75 S. 330(5) substituted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2015 (c. 11), Sch. 14 para. 3

[F76 330ZA Ordering of allowances U.K.

(1) In this section “relieving Chapter” means any of the following—

(a) Chapter 6A (reduction of supplementary charge: investment allowance);

(b) Chapter 8 (reduction of supplementary charge: onshore allowance);

(c) Chapter 9 (reduction of supplementary charge: cluster area allowance).

(2) Where a company has allowances under more than one relieving Chapter available for reducing the adjusted ring fence profits that are to be chargeable under section 330(1) for an accounting period, the company may choose the order in which the relieving Chapters in question are to be applied.

(3) In any relieving Chapter, “adjusted ring fence profits”, in relation to a company and an accounting period, means the adjusted ring fence profits which would (ignoring all relieving Chapters except those which the company chooses to apply before that Chapter) be taken into account in calculating the supplementary charge on the company under section 330(1) for the accounting period.]

Textual Amendments

F76 S. 330ZA inserted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2015 (c. 11), Sch. 14 para. 4

[F77 330A Decommissioning expenditure taken into account in calculating ring fence profits U.K.

(1) This section applies where—

(a) any decommissioning expenditure is taken into account in calculating the amount mentioned in paragraph (a) of subsection (3) of section 330 or the amount mentioned in paragraph (b) of that subsection, and

(b) if that expenditure were not so taken into account, the amount of the adjusted ring fence profits of the company for the accounting period would be greater than nil.

(2) In calculating for the purposes of section 330(1) the amount of the adjusted ring fence profits of the company for the accounting period, there is to be added an amount equal to the appropriate fraction of the used-up amount of that expenditure.

(3) For the purposes of this section—

• “the appropriate fraction” is

  

  where SC is the percentage specified in section 330(1) for the accounting period, and

• “the used-up amount”, in relation to any expenditure, is the difference between—

  (a)

  the adjusted ring fence profits of the company for the accounting period determined in the absence of this section (which may be nil), and

  (b)

  what the adjusted ring fence profits of the company for that accounting period would be if that expenditure were not taken into account as mentioned in subsection (1).

(4) In determining for the purposes of this section whether, and to what extent, any losses which have been taken into account as mentioned in subsection (1) are attributable to decommissioning expenditure—

(a) assume that any amounts of any other expenditure which could be taken into account in calculating those losses are taken into account before any amounts of decommissioning expenditure, and

(b) where any losses have been surrendered in accordance with Part 5, the company must specify, in accordance with a basis determined jointly by the company, the surrendering company (if different) and any other claimant company, whether any of those losses is attributable to decommissioning expenditure.

(5) But if paragraph (a) of subsection (4) would work unfavourably in the company's case, the company may elect for that paragraph not to apply in relation to it and for any amounts of expenditure which could be taken into account in calculating those losses instead to be taken into account in the order specified in the election.

(6) In determining for the purposes of this section the used-up amount of decommissioning expenditure, assume that any other amounts that could be deducted in calculating the adjusted ring fence profits of the company for the accounting period have already been so deducted.

(7) But if subsection (6) would work unfavourably in the company's case, the company may elect for that subsection not to apply in relation to it and for any amounts that could be deducted in calculating those adjusted ring fence profits instead to be deducted in the order specified in the election.

(8) For the purposes of this section, any deduction made under section 330B is to be disregarded.

(9) This section does not apply in relation to any accounting period for which the percentage specified in section 330(1) is less than or equal to 20% (including any accounting period beginning before 24 March 2011 and ending on or after that date).

(10) In this section—

• “claimant company” and “surrendering company” are to be read in accordance with Part 5 (see section 188), and

• “decommissioning expenditure” has the meaning given by section 330C.]

Textual Amendments

F77 Ss. 330A-330C inserted (with effect in accordance with Sch. 21 para. 6 of the amending Act) by Finance Act 2012 (c. 14), Sch. 21 para. 3

Modifications etc. (not altering text)

C3 Ss. 330A 330B excluded (with application in accordance with s. 48(3) of the amending Act) by Finance Act 2015 (c. 11), s. 48(5)(6)

[F77 330B Decommissioning expenditure taken into account for PRT purposes U.K.

(1) This section applies where—

(a) any decommissioning expenditure is taken into account in calculating the assessable profit accruing to a participator in any chargeable period from an oil field, F78 ...

(b) if that expenditure were not so taken into account, the amount of petroleum revenue tax with which the participator would be chargeable in respect of the field for the chargeable period would be greater than nil.

[F79 , and

(c) an amount equal to the appropriate fraction of the used-up amount of that expenditure is added under section 330A(2) in calculating the participator's adjusted ring fence profits for an accounting period.]

[F80 (2) In calculating for the purposes of section 330(1) the amount of the participator's adjusted ring fence profits for the accounting period, there is to be deducted the amount given by—

where—

RP is the relevant percentage of the decommissioning expenditure,

AF is the appropriate fraction, and

D is the PRT difference.]

(3) For the purposes of this section—

• [F81 “the relevant percentage of the decommissioning expenditure” is the percentage of that expenditure that is the used-up amount referred to in subsection (1)(c),]

• “the appropriate fraction” is

  

  where SC is the percentage specified in section 330(1) for the F82 ... accounting period, and

• “the PRT difference” is the difference between—

  (a)

  the amount of petroleum revenue tax with which the participator is chargeable for the chargeable period (which may be nil), and

  (b)

  the amount of petroleum revenue tax with which the participator would be chargeable for that chargeable period if the decommissioning expenditure were not taken into account as mentioned in [F83 subsection (1)(a) ] .

(4) In determining for the purposes of this section whether, and to what extent, any allowable losses which have been taken into account as mentioned in [F84 subsection (1)(a)] are attributable to decommissioning expenditure, assume that any amounts of any other expenditure which could be taken into account in calculating those losses are taken into account before any amounts of decommissioning expenditure.

(5) But if subsection (4) would work unfavourably in the participator's case, the participator may elect for that subsection not to apply in relation to it and for any amounts of expenditure which could be taken into account in calculating those losses instead to be taken into account in the order specified in the election.

(6) This section does not apply in relation to any accounting period for which the percentage specified in section 330(1) is less than or equal to 20% (including any accounting period beginning before 24 March 2011 and ending on or after that date).

(7) In this section—

• “assessable profit” and “allowable loss” have the same meaning as in Part 1 of OTA 1975 (see section 2 of that Act),

• “decommissioning expenditure” has the meaning given by section 330C, and

• F85 ...]

• [F86 “the used-up amount”, in relation to any expenditure, has the same meaning as in section 330A (see subsection (3) of that section).]

Textual Amendments

F77 Ss. 330A-330C inserted (with effect in accordance with Sch. 21 para. 6 of the amending Act) by Finance Act 2012 (c. 14), Sch. 21 para. 3

F78 Word in s. 330B(1)(a) omitted (with effect in accordance with s. 88(7) of the amending Act) by virtue of Finance Act 2013 (c. 29), s. 88(2)

F79 S. 330B(1)(c) and word inserted (with effect in accordance with s. 88(7) of the amending Act) by Finance Act 2013 (c. 29), s. 88(2)

F80 S. 330B(2) substituted (with effect in accordance with s. 88(7) of the amending Act) by Finance Act 2013 (c. 29), s. 88(3)

F81 Words in s. 330B(3) inserted (with effect in accordance with s. 88(7) of the amending Act) by Finance Act 2013 (c. 29), s. 88(4)(a)

F82 Word in s. 330B(3) omitted (with effect in accordance with s. 88(7) of the amending Act) by virtue of Finance Act 2013 (c. 29), s. 88(4)(b)

F83 Words in s. 330B(3) substituted (with effect in accordance with s. 88(7) of the amending Act) by Finance Act 2013 (c. 29), s. 88(4)(c)

F84 Words in s. 330B(4) substituted (with effect in accordance with s. 88(7) of the amending Act) by Finance Act 2013 (c. 29), s. 88(5)

F85 Words in s. 330B(7) omitted (with effect in accordance with s. 88(7) of the amending Act) by virtue of Finance Act 2013 (c. 29), s. 88(6)(a)

F86 Words in s. 330B(7) inserted (with effect in accordance with s. 88(7) of the amending Act) by Finance Act 2013 (c. 29), s. 88(6)(b)

Modifications etc. (not altering text)

C3 Ss. 330A 330B excluded (with application in accordance with s. 48(3) of the amending Act) by Finance Act 2015 (c. 11), s. 48(5)(6)

[F77 330C Meaning of “decommissioning expenditure” U.K.

(1) In sections 330A and 330B “decommissioning expenditure” means expenditure incurred in connection with—

(a) demolishing any plant or machinery,

(b) preserving any plant or machinery pending its reuse or demolition,

(c) preparing any plant or machinery for reuse,

(d) arranging for the reuse of any plant or machinery, or

(e) the restoration of any land.

(2) It is immaterial for the purposes of subsection (1)(b) whether the plant or machinery is reused, is demolished or is partly reused and partly demolished.

(3) It is immaterial for the purposes of subsection (1)(c) and (d) whether the plant or machinery is in fact reused.

(4) In subsection (1)(e) “restoration” includes landscaping.

(5) The Treasury may by order amend this section.

(6) An order under subsection (5) may include transitional provision and savings.]

Textual Amendments

F77 Ss. 330A-330C inserted (with effect in accordance with Sch. 21 para. 6 of the amending Act) by Finance Act 2012 (c. 14), Sch. 21 para. 3

331 Meaning of “financing costs” etc U.K.

(1) This section applies for the purposes of section 330.

(2) “Financing costs” means the costs of debt finance.

(3) In calculating the costs of debt finance for an accounting period the matters to be taken into account include—

(a) any costs giving rise to debits in respect of debtor relationships of the company under Part 5 of CTA 2009 (loan relationships), other than debits in respect of exchange losses from such relationships,

(b) any exchange gain or loss from a debtor relationship of the company in relation to debt finance,

(c) any credit or debit falling to be brought into account in accordance with Part 7 of CTA 2009 (derivative contracts) in relation to debt finance,

(d) the financing cost implicit in a payment under a finance lease,

(e) if the company is the lessee under a long funding operating lease, the amount deductible in respect of payments under the lease in calculating the profits of the lessee for corporation tax purposes (after first making against any such amount any reductions falling to be made as a result of section 379 (lessee under long funding operating lease)), and,

(f) any other costs arising from what would be considered in accordance with generally accepted accounting practice to be a financing transaction.

(4) If an amount representing the whole or part of a payment falling to be made by a company—

(a) falls (or would fall) to be treated as a finance charge under a finance lease for the purposes of accounts which relate to that company and one or more other companies and are prepared in accordance with generally accepted accounting practice, but

(b) is not so treated in the accounts of the company,

the amount is to be treated as a financing cost within subsection (3)(d).

(5) If—

(a) in calculating the adjusted ring fence profits of a company for an accounting period, an amount falls to be left out of account as a result of subsection (3)(d), but

(b) the whole or any part of that amount is repaid,

the repayment is also to be left out of account in calculating the adjusted ring fence profits of the company for any accounting period.

(6) In this section “finance lease” means any arrangements which—

(a) provide for an asset to be leased or otherwise made available by a person to another person (“the lessee”), and

(b) under generally accepted accounting practice—

(i) fall (or would fall) to be treated, in the accounts of the lessee or a person connected with the lessee, as a finance lease or a loan, or

(ii) are comprised in arrangements which fall (or would fall) to be so treated.

(7) For the purposes of applying subsection (6)(b), the lessee and any person connected with the lessee are to be treated as being companies which are incorporated in a part of the United Kingdom.

(8) Section 1176(1) (meaning of “connected” persons) does not apply for the purposes of this section.

(9) In this section—

• “accounts”, in relation to a company, includes accounts which—

  (a)

  relate to two or more companies of which that company is one, and

  (b)

  are drawn up in accordance with generally accepted accounting practice,

• “debtor relationship” has the meaning given by section 302(6) of CTA 2009,

• “exchange gains” and “exchange losses” are to be read in accordance with section 475 of CTA 2009, and

• “long funding operating lease” means a long funding operating lease for the purposes of Part 2 of CAA 2001 (see section 70YI(1) of that Act).

332 Assessment, recovery and postponement of supplementary charge U.K.

(1) The provisions of section 330(1) relating to the charging of a sum as if it were an amount of corporation tax are to be taken as applying all enactments applying generally to corporation tax.

(2) But this is subject to—

(a) the provisions of the Taxes Acts,

(b) any necessary modifications, and

(c) subsection (5).

(3) The enactments mentioned in subsection (1) include—

(a) those relating to returns of information and the supply of accounts, statements and reports,

(b) those relating to the assessing, collecting and receiving of corporation tax,

(c) those conferring or regulating a right of appeal, and

(d) those concerning administration, penalties, interest on unpaid tax and priority of tax in cases of insolvency under the law of any part of the United Kingdom.

(4) Accordingly TMA 1970 is to have effect as if any reference to corporation tax included a sum chargeable under section 330(1) as if it were an amount of corporation tax (but this does not limit subsections (1) to (3)).

(5) In the Corporation Tax (Treatment of Unrelieved Surplus Advance Corporation Tax) Regulations 1999 (S.I. 1999/358) or any further regulations made under section 32 of FA 1998 (unrelieved surplus advance corporation tax)—

(a) references to corporation tax do not include a sum chargeable on a company under section 330(1) as if it were corporation tax, and

(b) references to profits charged to corporation tax do not include adjusted ring fence profits, within the meaning of section 330.

(6) In this section “the Taxes Acts” has the same meaning as in TMA 1970 (see section 118(1) of that Act).

[F87 CHAPTER 6A U.K. Supplementary charge: investment allowance

Textual Amendments

F87 Pt. 8 Ch. 6A inserted (with effect in accordance with Sch. 12 para. 5 7 8 of the amending Act) by Finance Act 2015 (c. 11), Sch. 12 para. 2

Modifications etc. (not altering text)

C4 Pt. 8 Ch. 6A restricted (26.3.2015) by Finance Act 2015 (c. 11), Sch. 13 para. 6(2)

Introduction U.K.

332A Overview U.K.

(1) This Chapter sets out how relief for certain expenditure incurred in relation to a qualifying oil field is given by way of reduction of a company's adjusted ring fence profits.

(2) The Chapter includes provision about—

(a) the oil fields that are qualifying oil fields (section 332B);

(b) the expenditure that is investment expenditure (section 332BA);

(c) the generation of allowance by the incurring of relievable investment expenditure in relation to a qualifying oil field (sections 332C and 332CA);

(d) restrictions on the expenditure that is relievable (sections 332D to 332DC);

(e) how allowance is activated by relevant income from the same oil field (sections 332F to 332FC and 332H to 332HB) in order to be available for reducing adjusted ring fence profits (sections 332E and 332EA);

(f) the division of an accounting period into reference periods where a company has different shares of the equity in a qualifying oil field at different times in the period (section 332G);

(g) the transfer of allowance where shares of the equity in a qualifying oil field are disposed of (sections 332I to 332IB).

(3) For provision about the conversion of field allowance under Chapter 7 (as it had effect before 1 April 2015) into allowance under this Chapter, see paragraphs 7 and 8 of Schedule 12 to FA 2015.

“Qualifying oil field” and “investment expenditure” U.K.

332B Meaning of “qualifying oil field” U.K.

In this Chapter “qualifying oil field” means an oil field that is not wholly or partly included in a cluster area (see section 356JD).

332BA Meaning of “investment expenditure” U.K.

(1) For the purposes of this Chapter, expenditure incurred by a company is “investment” expenditure only if it is—

(a) capital expenditure, or

(b) expenditure of such other description as may be prescribed by the Treasury by regulations.

(2) Regulations under subsection (1)(b) may provide for any of the provisions of the regulations to have effect in relation to expenditure incurred before the regulations are made.

(3) But subsection (2) does not apply to any provision of amending or revoking regulations which has the effect that expenditure of any description ceases to be investment expenditure.

(4) Regulations under subsection (1)(b) may—

(a) make different provision for different purposes;

(b) make transitional provision and savings.

Investment allowance U.K.

332C Generation of investment allowance U.K.

(1) Subsection (2) applies where a company—

(a) is a participator in a qualifying oil field, and

(b) incurs any relievable investment expenditure on or after 1 April 2015 in relation to the oil field.

(2) The company is to hold an amount of allowance equal to 62.5% of the amount of the expenditure.

Allowance held under this Chapter is called “investment allowance”.

(3) For the purposes of this section investment expenditure incurred by a company is “relievable” only if, and so far as, it is incurred for the purposes of oil-related activities (see section 274).

(4) Subsections (1) to (3) are subject to—

(a) section 332D (which prevents expenditure on the acquisition of an asset from being relievable in certain circumstances),

(b) section 332DA (which restricts relievable expenditure in relation to an oil field that previously qualified for a field allowance under Chapter 7 as a new oil field),

(c) section 332DB (which restricts relievable expenditure in relation to a project by reference to which an oil field previously qualified for a field allowance under Chapter 7 as an additionally-developed oil field), and

(d) section 332DC (which prevents certain expenditure from being relievable if it relates to an oil field in respect of which onshore allowance may be obtained under Chapter 8).

(5) Investment allowance is said in this Chapter to be “generated” at the time when the investment expenditure is incurred (see section 332K) and is referred to as being generated—

(a) “by” the company concerned;

(b) “in” the qualifying oil field concerned.

(6) Where—

(a) investment expenditure is incurred only partly for the purposes of oil-related activities, or

(b) the oil-related activities for the purposes of which investment expenditure is incurred are carried on only partly in relation to a particular qualifying oil field,

the expenditure is to be attributed to the activities or field concerned on a just and reasonable basis.

332CA Expenditure incurred before field is determined U.K.

(1) This section applies to expenditure incurred by a company on or after 1 April 2015 for the purposes of oil-related activities if or to the extent that the following conditions are met.

(2) The conditions are—

(a) that the expenditure was in respect of an area,

(b) that, at the time the expenditure was incurred, the area had not been determined under Schedule 1 to OTA 1975 to be an oil field,

(c) that the area is subsequently determined under that Schedule to be an oil field, and

(d) that the company is a licensee in the oil field.

(3) Where this section applies in relation to an amount of expenditure, that amount is treated for the purposes of this Chapter as incurred by the company—

(a) in relation to the oil field, and

(b) at the time when the area is determined under Schedule 1 to OTA 1975 to be an oil field.

Restrictions on relievable expenditure U.K.

332D Expenditure on acquisition of asset: disqualifying conditions U.K.

(1) Investment expenditure incurred by a company (“the acquiring company”) on the acquisition of an asset [F88 (“the acquisition concerned”)] is not relievable expenditure for the purposes of section 332C if either of the disqualifying conditions in this section applies to the asset.

(2) The first disqualifying condition is that investment expenditure incurred before the [F89 acquisition concerned,] by the acquiring company or another company, in acquiring, [F90 leasing,] bringing into existence or enhancing the value of the asset was relievable under section 332C.

(3) The second disqualifying condition is that—

(a) the asset—

(i) is the whole or part of the equity in a qualifying oil field, or

(ii) is acquired in connection with a transfer to the acquiring company of the whole or part of the equity in a qualifying oil field,

(b) expenditure was incurred before the [F91 acquisition concerned,] by the acquiring company or another company, in acquiring, [F92 leasing,] bringing into existence or enhancing the value of the asset, and

(c) any of that expenditure—

(i) related to the qualifying oil field, and

(ii) would have been relievable under section 332C if this Chapter had been fully in force and had applied to expenditure incurred at that time.

(4) For the purposes of subsection (3)(a)(ii) it does not matter whether the asset is acquired at the time of the transfer.

[F93 (5) In subsection (3)(c) “this Chapter” means the provisions of this Chapter, and of any regulations made under this Chapter, as those provisions have effect at the time when the investment expenditure mentioned in subsection (1) is incurred.

(6) Subsections (7) and (8) apply where investment expenditure mentioned in subsection (1) would, in the absence of this section, be relievable under section 332C by reason of section 332CA (treatment of expenditure incurred before field is determined).

(7) Where this subsection applies—

(a) subsection (2) is to be read as if after “was” there were inserted “ , or has become, ”, and

(b) in determining for the purposes of subsection (2) or (3)(b) whether particular expenditure was incurred “before” the acquisition concerned—

(i) paragraph (b) of section 332CA(3) is to be ignored, and

(ii) accordingly, that expenditure is to be taken (for the purposes of determining whether it was incurred before the acquisition concerned) to have been incurred when it was actually incurred.

(8) Where this subsection applies, in determining whether the second disqualifying condition applies to the asset—

(a) the reference in subsection (3)(a)(i) to a qualifying oil field is to be read as including an area which, at the time of the acquisition concerned, had not been determined to be an oil field but which has subsequently become a qualifying oil field,

(b) the reference in subsection (3)(a)(ii) to a qualifying oil field is to be read as including an area which, at the time of the transfer, had not been determined to be an oil field but which has subsequently become a qualifying oil field,

(c) the reference in subsection (3)(c)(i) to “the qualifying oil field” is to be read accordingly, and

(d) the following sub-paragraph is to be treated as substituted for subsection (3)(c)(ii)—

“(ii) would have been relievable under section 332C if this Chapter had been fully in force and had applied to expenditure incurred at the time when that expenditure was actually incurred and the area in question had been a qualifying oil field at that time.”

(9) In subsection (8)(a) and (b) “determined” means determined under Schedule 1 to OTA 1975.

(10) In this section any reference to expenditure which was incurred by a company in “leasing” an asset is to expenditure incurred by the company under an agreement under which the asset was leased to the company.]

Textual Amendments

F88 Words in s. 332D(1) inserted (with effect in accordance with s. 59(6) of the amending Act) by Finance Act 2016 (c. 24), s. 59(2)

F89 Words in s. 332D(2) substituted (with effect in accordance with s. 59(6) of the amending Act) by Finance Act 2016 (c. 24), s. 59(3)(a)

F90 Word in s. 332D(2) inserted (with effect in accordance with s. 59(6) of the amending Act) by Finance Act 2016 (c. 24), s. 59(3)(b)

F91 Words in s. 332D(3)(b) substituted (with effect in accordance with s. 59(6) of the amending Act) by Finance Act 2016 (c. 24), s. 59(4)(a)

F92 Word in s. 332D(3)(b) inserted (with effect in accordance with s. 59(6) of the amending Act) by Finance Act 2016 (c. 24), s. 59(4)(b)

F93 S. 332D(5)-(10) inserted (with effect in accordance with s. 59(6) of the amending Act) by Finance Act 2016 (c. 24), s. 59(5)

332DA Restriction where field qualified for field allowance as new field U.K.

(1) This section applies to expenditure which—

(a) is incurred by a company in relation to an oil field that was for the purposes of Chapter 7 a new oil field with an authorisation day before 1 January 2016,

(b) would in the absence of this section be relievable under section 332C, and

(c) is not excluded from this section by—

(i) subsection (5) (material completion),

(ii) subsection (7) (company without share of equity), or

(iii) subsection (8) (additionally-developed oil fields).

In the following provisions of this section, expenditure to which this section applies is referred to as “relevant expenditure”.

(2) Relevant expenditure incurred by a company on any day (“the relevant day”) is not relievable expenditure for the purposes of section 332C except—

(a) if immediately before the relevant day the cumulative total of relevant expenditure attributable to the company's share of the equity in the oil field (see subsection (3)) exceeds the relevant field threshold (see subsection (4)), or

(b) to the extent that, in a case not within paragraph (a), the amount of relevant expenditure incurred on the relevant day, when added to that cumulative total, exceeds the relevant field threshold.

(3) The “cumulative total of relevant expenditure attributable to the company's share of the equity in the oil field” at any time is the total amount of relevant expenditure which is incurred by the company during the period beginning with the start date and ending with that time, but this is subject to sections 332IA(3) and 332IB(4) (which relate to the disposal and acquisition of equity in an oil field).

In this subsection “the start date” means 1 April 2015 or, if later, the authorisation day (within the meaning of Chapter 7) for the field.

(4) The “relevant field threshold” is an amount given by the formula—

where—

F is the total field allowance for the oil field, as originally determined under section 356 for the purposes of Chapter 7;

E is the company's share of the equity in the oil field at the end of the relevant day.

(5) This section does not apply to expenditure which is incurred on or after the day determined by the [F94 OGA] as that on which the relevant project was materially completed.

(6) “The relevant project” means—

(a) in a case that fell within section 351(1)(a), the development described in the field development plan for the field, and

(b) in a case that fell within section 351(1)(b) or (c), the programme of development for the field.

(7) This section does not apply to expenditure incurred by a company if—

(a) at the time when the expenditure is incurred, the company is not a licensee in the oil field, and

(b) the expenditure is incurred in making an asset available in a way which gives rise to tariff receipts (as defined by section 15(3) of the Oil Taxation Act 1983) or tax-exempt tariffing receipts (as defined by section 6A(2) of that Act).

(8) This section does not apply to expenditure to which section 332DB applies.

Textual Amendments

F94 Word in s. 332DA(5) substituted (1.10.2016) by The Petroleum (Transfer of Functions) Regulations 2016 (S.I. 2016/898), regs. 1(2), 15(3)

332DB Restriction where project in additionally-developed field qualified for field allowance U.K.

(1) This section applies to expenditure which—

(a) is incurred by a company in relation to a project by reference to which an oil field was immediately before 1 April 2015 an additionally-developed oil field for the purposes of Chapter 7,

(b) would in the absence of this section be relievable under section 332C, and

(c) is not excluded from this section by subsection (5) (material completion) or subsection (6) (company without share of project-related reserves).

In the following provisions of this section, expenditure to which this section applies is referred to as “relevant expenditure”.

(2) Relevant expenditure incurred by a company in relation to a project on any day (“the relevant day”) is not relievable expenditure for the purposes of section 332C except—

(a) if immediately before the relevant day the cumulative total of relevant expenditure attributable to the company's share of project-related reserves (see subsection (3)) exceeds the relevant project threshold (see subsection (4)), or

(b) to the extent that, in a case not within paragraph (a), the amount of relevant expenditure incurred on the relevant day, when added to that cumulative total, exceeds the relevant project threshold.

(3) The “cumulative total of relevant expenditure attributable to the company's share of project-related reserves” at any time is the total amount of relevant expenditure which is incurred by the company during the period beginning with 1 April 2015 and ending with that time, but this is subject to sections 332IA(5) and 332IB(6) (which relate to the disposal and acquisition of shares in project-related reserves).

(4) The “relevant project threshold” is an amount given by the formula—

where—

F is the total field allowance for the oil field in relation to the project, as originally determined under section 356A for the purposes of Chapter 7;

E is the company's share of project-related reserves at the end of the relevant day.

(5) This section does not apply to expenditure which is incurred on or after the day determined by the [F95 OGA] as that on which the project was materially completed.

(6) This section does not apply to expenditure incurred by a company if—

(a) the company does not, at the time when the expenditure is incurred, hold a share of project-related reserves, and

(b) the expenditure is incurred in making an asset available in a way which gives rise to tariff receipts (as defined by section 15(3) of the Oil Taxation Act 1983) or tax-exempt tariffing receipts (as defined by section 6A(2) of that Act).

(7) In this section “project-related reserves”, in relation to a project and an oil field, means the additional reserves of oil that the oil field has as a result of the project.

Textual Amendments

F95 Word in s. 332DB(5) substituted (1.10.2016) by The Petroleum (Transfer of Functions) Regulations 2016 (S.I. 2016/898), regs. 1(2), 15(4)

332DC Restriction relating to fields qualifying for onshore allowance U.K.

(1) This section applies to investment expenditure which is incurred—

(a) for the purposes of onshore oil-related activities in respect of an oil field which is a qualifying site within the meaning of section 356C (generation of onshore allowance), and

(b) on a day at the beginning of which neither of the disqualifying conditions in section 356CA (disqualifying conditions for section 356C(4)(b)) is met.

(2) Expenditure to which this section applies is not relievable expenditure for the purposes of section 332C.

(3) In this section “onshore oil-related activities” has the same meaning as in Chapter 8 (see section 356BA).

Reduction of adjusted ring fence profits U.K.

332E Reduction of adjusted ring fence profits U.K.

(1) A company's adjusted ring fence profits for an accounting period are to be reduced by the cumulative total amount of activated allowance for the accounting period (but are not to be reduced below zero).

(2) In relation to a company and an accounting period, the “cumulative total amount of activated allowance” is—

where—

A is the total of any amounts of activated allowance the company has, for any qualifying oil fields, for the accounting period (see section 332F(2)) or for reference periods within the accounting period (see section 332H(1)), and

C is any amount carried forward to the period under section 332EA.

332EA Carrying forward of activated allowance U.K.

(1) This section applies where, in the case of a company and an accounting period, the cumulative total amount of activated allowance (see section 332E(2)) is greater than the adjusted ring fence profits.

(2) The difference is carried forward to the next accounting period.

Activated and unactivated allowance: basic calculation rules U.K.

332F Activation of allowance: no change of equity share U.K.

(1) This section applies where—

(a) for the whole or part of an accounting period, a company is a licensee in a qualifying oil field,

(b) the accounting period is not divided into reference periods (see section 332G),

(c) the company holds, for the accounting period and the qualifying oil field, a closing balance of unactivated allowance (see section 332FA) which is greater than zero, and

(d) the company has relevant income from the qualifying oil field for the accounting period.

(2) The amount of activated allowance the company has for that accounting period and that qualifying oil field is the smallest of—

(a) the closing balance of unactivated allowance held for the accounting period and the oil field;

(b) [F96 the total amount of] the company's relevant income from that oil field for that accounting period;

(c) in a case where section 332FB applies, the relevant activation limit for the accounting period and the oil field (see subsection (2) of that section).

[F97 (3) For the purposes of this Chapter, income is relevant income of a company from a qualifying oil field for an accounting period if it is—

(a) production income of the company from any oil extraction activities carried on in that oil field that is taken into account in calculating the company's adjusted ring fence profits for the accounting period, or

(b) income that—

(i) is income of such description (whether or not relating to the oil field) as may be prescribed by the Treasury by regulations, and

(ii) is taken into account as mentioned in paragraph (a).

(4) The Treasury may by regulations make such amendments of this Chapter as the Treasury consider appropriate in consequence of, or in connection with, any provision contained in regulations under subsection (3)(b).

(5) Regulations under subsection (3)(b) or (4) may provide for any of the provisions of the regulations to have effect in relation to accounting periods ending before (or current when) the regulations are made.

(6) But subsection (5) does not apply to—

(a) any provision of amending or revoking regulations under subsection (3)(b) which has the effect that income of any description is to cease to be treated as relevant income of a company from a qualifying oil field for an accounting period, or

(b) provision made under subsection (4) in consequence of or in connection with provision within paragraph (a).

(7) Regulations under this section may make transitional provision or savings.

(8) Regulations under this section may not be made unless a draft of the instrument containing them has been laid before, and approved by a resolution of, the House of Commons.]

Textual Amendments

F96 Words in s. 332F(2)(b) inserted (15.9.2016) by Finance Act 2016 (c. 24), s. 60(2)

F97 Ss. 332F(3)-(8) substituted for s. 332F(3) (15.9.2016) by Finance Act 2016 (c. 24), s. 60(3)

332FA The closing balance of unactivated allowance for an accounting period U.K.

The closing balance of unactivated allowance held by a company for an accounting period and a qualifying oil field is—

where—

• P is the amount of investment allowance generated by the company in the qualifying oil field in the accounting period (including any amount treated under section 332IB(1) as generated by the company in that field in that accounting period);

• Q is any amount carried forward from an immediately preceding accounting period under section 332FC(1) or from an immediately preceding reference period under section 332HB(1).

332FB Activation limit for former additionally-developed fields U.K.

(1) This section applies to a company for an accounting period in relation to an oil field if—

(a) immediately before 1 April 2015 the oil field was an additionally-developed oil field for the purposes of Chapter 7 as a result of a project that fell within section 349A(1), and

(b) the project is not an excluded project (see subsection (3)).

(2) For the purposes of section 332F(2)(c), the “relevant activation limit” for the accounting period and the oil field is the amount that would be the closing balance of unactivated allowance held by the company for the accounting period if paragraph 7(3) of Schedule 12 to FA 2015 (conversion of unactivated field allowance) had never applied to any allowance attributable to the project.

(3) The project is an “excluded” project if condition A or condition B is met.

(4) Condition A is that—

(a) a substantial amount of work has been done in relation to the project, and

(b) the accounting period begins on or after the first day of the year of expected first production for the project.

(5) The “year of expected first production” for the project is the year that was notified to the Secretary of State, on or before the day on which the project was authorised by the Secretary of State, as the calendar year in which additional reserves of oil were expected to be first won from the field as a result of the project.

(6) Condition B is that the accounting period begins on or after the day determined under section 332DB(5) as that on which the project was materially completed.

332FC Carrying forward of unactivated allowance U.K.

(1) If, in the case of an accounting period of a company and a qualifying oil field, the amount given by subsection (2) is greater than zero, that amount is treated as investment allowance held by the company for that oil field for the next period (and is treated as held with effect from the beginning of that period).

(2) The amount is—

where—

U is the closing balance of unactivated allowance held for the accounting period and the qualifying oil field (see section 332FA);

A is the amount of activated allowance that the company has for the accounting period and the qualifying oil field (see section 332F(2));

T is any amount that is required by section 332IA(1) (reduction of allowance if equity disposed of) to be deducted in connection with a disposal or disposals made on the day following the end of the accounting period.

(3) If the accounting period is followed by a reference period of the company belonging to that qualifying oil field (see section 332G), “the next period” means that period.

(4) If subsection (3) does not apply “the next period” means the next accounting period of the company.

Changes in equity share: reference periods U.K.

332G Reference periods U.K.

(1) This section applies where—

(a) a company is a licensee in a qualifying oil field for the whole or part of an accounting period, and

(b) the company has different shares of the equity in the field on different days in the accounting period.

(2) For the purposes of this Chapter, the accounting period is to be divided into as many consecutive periods (called “reference periods”) as are necessary to secure that—

(a) a reference period begins with the first day of the accounting period,

(b) a reference period begins with the date of each disposal or acquisition of a share of the equity in the qualifying oil field that is made by the company in that accounting period (not including acquisitions or disposals made on the first day of the accounting period), and

(c) a reference period ends with the last day of the accounting period.

(3) Each such reference period “belongs to” the qualifying oil field concerned.

Changes in equity share: activation of allowance U.K.

332H Activation of allowance: reference periods U.K.

(1) The amount (if any) of activated allowance that a company has for a qualifying oil field for a reference period is the smallest of the following—

(a) the total amount of unactivated allowance that is attributable to the reference period and the oil field (see section 332HA);

(b) the company's relevant income from the oil field for the reference period (see subsection (2));

(c) in a case where section 332FB (activation limit applying in case of certain fields) applies, the relevant activation limit for the reference period and the oil field (see subsection (3)).

(2) The company's relevant income from the oil field for the reference period is so much of the company's relevant income from the oil field for the accounting period (see section 332F(3)) as arises in the reference period.

(3) If section 332FB (activation limit applying in case of certain fields) applies in relation to the oil field for the accounting period in which the reference period falls, the “relevant activation limit” for the reference period and the oil field is the amount that would be the total amount of unactivated allowance attributable to the reference period and the oil field if paragraph 7(3) of Schedule 12 to FA 2015 (conversion of unactivated field allowance) had never applied to any allowance attributable to the project in question.

332HA Unactivated amounts attributable to a reference period U.K.

(1) For the purposes of section 332H(1)(a), the total amount of unactivated allowance attributable to a reference period and a qualifying oil field is—

where—

P is the amount of allowance generated by the company in the reference period in the oil field (including any amount treated under section 332IB(1) as generated by the company in that oil field in that reference period);

Q is the amount given by subsection (2) or (3).

(2) Where the reference period is not immediately preceded by another reference period but is preceded by an accounting period of the company, Q is equal to the amount (if any) that is to be carried forward from that preceding accounting period under section 332FC(1).

(3) Where the reference period is immediately preceded by another reference period, Q is equal to the amount (if any) carried forward under section 332HB(1).

332HB Carry-forward of unactivated allowance from a reference period U.K.

(1) If, in the case of a reference period (“RP1”) of a company, the amount given by subsection (2) is greater than zero, that amount is treated as investment allowance held by the company for the qualifying oil field for the next period (and is treated as held with effect from the beginning of that period).

(2) The amount is—

where—

U is the total amount of unactivated allowance attributable to the reference period and the qualifying oil field (see section 332HA(1));

A is the amount of activated allowance that the company has for the qualifying oil field for the reference period (see section 332H(1));

T is any amount that is required by section 332IA(1) (reduction of allowance if equity disposed of) to be deducted in connection with a disposal or disposals made on the day following the end of the reference period.

(3) If RP1 is immediately followed by another reference period of the company (belonging to the same qualifying oil field), “the next period” means that reference period.

(4) If subsection (3) does not apply, “the next period” means the next accounting period of the company.

Transfers of allowance on disposal of equity share U.K.

332I Introduction to sections 332IA and 332IB U.K.

(1) Sections 332IA and 332IB apply where—

(a) a company (“the transferor”) disposes of the whole or part of its share of the equity in a qualifying oil field, and

(b) one or more of the following conditions is met.

(2) The “unactivated allowance condition” is that immediately before the disposal the transferor holds unactivated investment allowance for the oil field.

(3) The “section 332DA expenditure condition” is that—

(a) immediately before the disposal the company has for the purposes of section 332DA (restriction where field qualified for field allowance as new field) a cumulative total of relevant expenditure attributable to its share of the equity in the oil field, and

(b) the date of the disposal falls before any date determined under section 332DA(5) (material completion).

(4) The “section 332DB expenditure condition” is that—

(a) immediately before the disposal the company has for the purposes of section 332DB (restriction where project in additionally-developed field qualified for field allowance) a cumulative total of relevant expenditure attributable to its share of project-related reserves in relation to the oil field, and

(b) the date of the disposal falls before any date determined under section 332DB(5) (material completion).

(5) In sections 332IA and 332IB—

(a) each of the companies to which a share of the equity is disposed of is referred to as “a transferee”, and

(b) references to conditions are to be read in accordance with this section.

332IA Reduction of allowance if equity is disposed of U.K.

(1) If the unactivated allowance condition is met, the following amount is to be deducted in calculating the total amount of unactivated investment allowance attributable to the qualifying oil field concerned that is to be carried forward under section 332FC or 332HB from an accounting period or reference period of the transferor—

where—

U and A are—

(a)

in the case of a disposal made on the day following the end of an accounting period, the same as in section 332FC(2) (in its application to that period), or

(b)

in the case of a disposal made on the day following the end of a reference period, the same as in section 332HB(2) (in its application to that period);

E1 is the transferor's share of the equity in the qualifying oil field immediately before the disposal;

E2 is the transferor's share of the equity in the qualifying oil field immediately after the disposal.

(2) Subsection (3) applies if the section 332DA expenditure condition is met.

(3) As from the beginning of the accounting period or reference period that begins with the day on which the disposal is made, the following amount is to be deducted in calculating for the purposes of section 332DA the cumulative total of relevant expenditure attributable to the transferor's share of the equity in the oil field—

where—

X is the cumulative total of relevant expenditure attributable to the transferor's share of the equity in the oil field (for the purposes of section 332DA), determined immediately before the disposal;

E1 and E2 have the same meaning as in subsection (1).

(4) Subsection (5) applies if the section 332DB expenditure condition is met.

(5) As from the beginning of the accounting period or reference period that begins with the day on which the disposal is made, the following amount is to be deducted in calculating for the purposes of section 332DB the cumulative total of relevant expenditure attributable to the transferor's share of project-related reserves—

where—

X is the cumulative total of relevant expenditure attributable to the transferor's share of project-related reserves (for the purposes of section 332DB), determined immediately before the disposal;

E1 is the transferor's share, immediately before the disposal, of the additional reserves of oil that the oil field has as a result of the project;

E2 is the transferor's share, immediately after the disposal, of the additional reserves of oil that the oil field has as a result of the project.

332IB Acquisition of allowance if equity acquired U.K.

(1) If the unactivated allowance condition is met, a transferee is treated as generating in the qualifying oil field concerned, at the beginning of the reference period or accounting period of the transferee that begins with the day on which the disposal is made, investment allowance of the amount given by subsection (2).

(2) The amount is—

where—

R is the amount determined for the purposes of the deduction under section 332IA(1);

E3 is the share of the equity in the qualifying oil field that the transferee has acquired from the transferor;

E1 and E2 are the same as in section 332IA(1).

(3) Subsection (4) applies if the section 332DA expenditure condition is met.

(4) A transferee is treated for the purposes of section 332DA(3) as having incurred in respect of the qualifying oil field, at the beginning of the reference period or accounting period of the transferee that begins with the day on which the disposal is made, expenditure of the following amount—

where—

R is the amount determined for the purposes of the deduction under section 332IA(3);

E1, E2 and E3 have the same meaning as in subsection (2).

(5) Subsection (6) applies if the section 332DB expenditure condition is met.

(6) A transferee is treated for the purposes of section 332DB(3) as having incurred in respect of the project, at the beginning of the reference period or accounting period of the transferee that begins with the day on which the disposal is made, expenditure of the following amount—

where—

R is the amount determined for the purposes of the deduction under section 332IA(5);

E3 is the share of the project-related reserves that the transferee has acquired from the transferor;

E1 and E2 have the same meaning as in section 332IA(5).

(7) In subsection (6) “project-related reserves” means the additional reserves of oil that the oil field has as a result of the project.

Miscellaneous U.K.

332J Adjustments U.K.

(1) This section applies if there is any alteration in a company's adjusted ring fence profits for an accounting period after this Chapter has effect in relation to the profits.

(2) Any necessary adjustments to the operation of this Chapter (whether in relation to the profits or otherwise) are to be made (including any necessary adjustments to the effect of section 332E on the profits or to the calculation of the amount to be carried forward under section 332EA).

332JA Regulations amending specified percentages U.K.

(1) The Treasury may by regulations substitute a different percentage for the percentage that is at any time specified in any of the following provisions—

(a) section 332C(2) (calculation of allowance as a percentage of investment expenditure);

(b) section 332DA(4) (calculation of relevant field threshold in relation to former new field);

(c) section 332DB(4) (calculation of relevant project threshold in relation to former additionally-developed field).

(2) Regulations under subsection (1) may include transitional provision.

Interpretation U.K.

332K When expenditure is incurred U.K.

(1) Section 5 of CAA 2001 (when capital expenditure is incurred) applies for the purposes of this Chapter as for the purposes of that Act.

(2) Regulations under section 332BA(1)(b) may make provision about when any expenditure that is investment expenditure as a result of the regulations is to be treated for the purposes of this Chapter as incurred.

(3) This section is subject to section 332CA(3).

332KA Other definitions U.K.

In this Chapter (except where otherwise specified)—

• “adjusted ring fence profits”, in relation to a company and an accounting period, is to be read in accordance with section 330ZA;

• “cumulative total amount of activated allowance” has the meaning given by section 332E(2);

• “investment allowance” has the meaning given by section 332C(2);

• “licence” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act);

• “licensee” has the same meaning as in Part 1 of OTA 1975;

• “relevant income”, in relation to a qualifying oil field and an accounting period, has the meaning given by section 332F(3).]

F98 Chapter 7 U.K. REDUCTION OF SUPPLEMENTARY CHARGE FOR ELIGIBLE OIL FIELDS

Textual Amendments

F98 Pt. 8 Ch. 7 omitted (with effect in accordance with Sch. 12 para. 6-8 of the amending Act) by virtue of Finance Act 2015 (c. 11), Sch. 12 para. 3

Reduction of adjusted ring fence profits U.K.

333 Reduction of adjusted ring fence profits U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pool of field allowances U.K.

334 Company's pool of field allowances U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

335 Carrying part of pool of field allowances into following period U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

336 Carrying whole of pool of field allowances into following period U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Field allowance: when held and unactivated amount U.K.

337 Licensee to hold field allowance U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

338 Holding a field allowance on acquisition of equity share U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

339 Unactivated amount of field allowance U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

No change in equity share: activation of allowance U.K.

340 Introduction to section 341 U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

341 Activation of field allowance U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Change in equity share: activation of allowance U.K.

342 Introduction to sections 343 and 344 U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

343 Reference periods U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

344 Activation of field allowance U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Change in equity share: transfer of field allowance U.K.

345 Introduction to sections 346 and 347 U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

346 Reduction of field allowance if equity disposed of U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

347 Acquisition of field allowance if equity acquired U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Miscellaneous U.K.

348 Adjustments U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

349 Orders U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interpretation U.K.

349A “Additionally-developed oil field” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

350 “New oil field” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

351 “Authorisation of development of an oil field” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

352 “Qualifying oil field” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

353 “Small oil field” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

354 “Ultra heavy oil field” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

355 “Ultra high pressure/high temperature oil field” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

355A “Large deep water oil field” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

355B “Large shallow water gas field” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

355C “Deep water gas field” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

356 “Total field allowance for a new oil field” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

356A “Total field allowance for an additionally-developed oil field” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

356AA Other definitions U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

357 Other definitions U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F99 CHAPTER 8 U.K. Supplementary charge: onshore allowance

Textual Amendments

F99 Pt. 8 Ch. 8 inserted (with effect in accordance with Sch. 15 paras. 6(1), 9(2) of the amending Act) by Finance Act 2014 (c. 26), Sch. 15 para. 3

Introduction U.K.

356B Overview U.K.

This Chapter sets out how relief for certain capital expenditure incurred for the purposes of onshore oil-related activities is given by way of reduction of a company's adjusted ring fence profits, and includes provision about—

(a) the need for allowance held for a site to be activated by relevant income from the same site in order for the allowance to be available for reducing adjusted ring fence profits,

(b) elections by a company to transfer allowance between different sites in which it is a licensee (see section 356F), and

(c) mandatory transfers of allowance where shares in the equity in a licensed area are disposed of (see sections 356H to 356HB and the related provisions in sections 356G to 356GD).

356BA “Onshore oil-related activities” U.K.

(1) In this Chapter “onshore oil-related activities” means activities of a company which are carried on onshore and—

(a) fall within any of subsections (1) to (4) of section 356BB, or

(b) consist of the acquisition, enjoyment or exploitation of oil rights.

(2) Activities of a company are carried on “onshore” if they are authorised—

(a) under a landward licence under Part 1 of the Petroleum Act 1998 or the Petroleum (Production) Act 1934, or

(b) under a licence under the Petroleum (Production) Act (Northern Ireland) 1964.

(3) In subsection (2)(a) “landward licence” means a licence in respect of an area which falls within the definition of “landward area” in the regulations pursuant to which the licence was applied for.

356BB The activities U.K.

(1) Activities of a company in searching for oil or causing such searching to be carried out for the company.

(2) Activities of a company in extracting oil, or causing oil to be extracted for it, under rights which—

(a) authorise the extraction, and

(b) are held by it or by a company associated with it.

(3) Activities of a company in transporting, or causing to be transported for it, oil extracted under rights which—

(a) authorise the extraction, and

(b) are held as mentioned in subsection (2)(b),

but only if the transportation meets the condition in subsection (5).

(4) Activities of the company in effecting, or causing to be effected for it, the initial treatment or initial storage of oil won from any site under rights which—

(a) authorise its extraction, and

(b) are held as mentioned in subsection (2)(b).

(5) The condition mentioned in subsection (3) is that the transportation is to a place at which the seller in a sale at arm's length could reasonably be expected to deliver it (or, if there is more than one such place, the one nearest to the place of extraction).

(6) In this section “initial storage”—

(a) means, in relation to oil won from a site, the storage of a quantity of oil won from the site not exceeding 10 times the relevant share of the maximum daily production rate of oil for the site as planned or achieved (whichever is greater), but

(b) does not include the matters excluded by paragraphs (a) to (c) of the definition of “initial storage” in section 12(1) of OTA 1975;

and in this subsection “the relevant share” means a share proportionate to the company's share of oil won from the site concerned.

(7) In this section “initial treatment” has the meaning given by section 12(1) of OTA 1975; but for this purpose that definition is to be read as if the references in it to an oil field were to a site.

356BC “Site” U.K.

In this Chapter “site” (except in the expression “drilling and extraction site”) means—

(a) a drilling and extraction site that is not used in connection with any oil field, or

(b) an oil field (whether or not one or more drilling and extraction sites are used in connection with it).

Onshore allowance U.K.

356C Generation of onshore allowance U.K.

(1) Subsection (2) applies where a company incurs any relievable capital expenditure in relation to a qualifying site.

(2) The company is to hold an amount of allowance equal to 75% of the amount of the expenditure.

(3) “Qualifying site” means a site whose development (in whole or in part) is authorised for the first time on or after 5 December 2013.

(4) Capital expenditure incurred by a company is “relievable” only if, and so far as—

(a) it is incurred for the purposes of onshore oil-related activities (see section 356BA), and

(b) neither of the disqualifying conditions is met at the beginning of the day on which the expenditure is incurred (see section 356CA).

[F100 (4A) Subsections (1) to (4) are subject to section 356CAA (which prevents expenditure on the acquisition of an asset from being relievable in certain circumstances).]

(5) Allowance held under this Chapter is called “onshore allowance”.

(6) Onshore allowance is said in this Chapter to be “generated” at the time when the capital expenditure is incurred (see section 356JA).

(7) Onshore allowance is referred to in this Chapter as being generated—

(a) “by” the company concerned,

(b) “at” the site concerned.

(8) Where capital expenditure is incurred only partly for the purposes of onshore oil-related activities, or the onshore oil-related activities for the purposes of which capital expenditure is incurred are carried on only partly in relation to a particular site, the expenditure is to be attributed to the site concerned on a just and reasonable basis.

(9) In this section, references to authorisation of development of a site—

(a) in the case of a site which is an oil field, are to be read in accordance with [F101 section 356IB];

(b) in the case of a drilling and extraction site, are to be read in accordance with section 356J.

Textual Amendments

F100 S. 356C(4A) inserted (with effect in accordance with s. 61(4) of the amending Act) by Finance Act 2016 (c. 24), s. 61(2)

F101 Words in s. 356C(9)(a) substituted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2015 (c. 11), Sch. 14 para. 5

356CA Disqualifying conditions for section 356C(4)(b) U.K.

(1) The first disqualifying condition is that production from the site is expected to exceed 7,000,000 tonnes.

(2) The second disqualifying condition is that production from the site has exceeded 7,000,000 tonnes.

(3) For the purposes of this section 1,100 cubic metres of gas at a temperature of 15 degrees celsius and pressure of one atmosphere is to be counted as equivalent to one tonne.

[F102 356CAA Expenditure on acquisition of asset: further disqualifying conditions U.K.

(1) Capital expenditure incurred by a company (“the acquiring company“) on the acquisition of an asset (“the acquisition concerned”) is not relievable capital expenditure for the purposes of section 356C if subsection (2), (3) or (8) applies to the asset.

(2) This subsection applies to the asset if capital expenditure incurred before the acquisition concerned, by the acquiring company or another company, in acquiring, bringing into existence or enhancing the value of the asset was relievable under section 356C.

(3) This subsection applies to the asset if—

(a) the asset—

(i) is the whole or part of the equity in a qualifying site, or

(ii) is acquired in connection with a transfer to the acquiring company of the whole or part of the equity in a qualifying site,

(b) capital expenditure was incurred before the acquisition concerned, by the acquiring company or another company, in acquiring, bringing into existence or enhancing the value of the asset, and

(c) any of that expenditure—

(i) related to the qualifying site, and

(ii) would have been relievable under section 356C if this Chapter had been fully in force and had applied to expenditure incurred at that time.

(4) For the purposes of subsection (3)(a)(ii) it does not matter whether the asset is acquired at the time of the transfer.

(5) In subsection (3)(c) “this Chapter” means the provisions of this Chapter as those provisions have effect at the time when the capital expenditure mentioned in subsection (1) is incurred.

(6) The reference in subsection (3)(c)(i) to the qualifying site includes an area that, although not a qualifying site when the expenditure mentioned in subsection (3)(b) was incurred, subsequently became the qualifying site.

(7) Where expenditure mentioned in subsection (3)(b) related to an area which subsequently became the qualifying site, the following sub-paragraph is to be treated as substituted for subsection (3)(c)(ii)—

“(ii) would have been relievable under section 356C if the area in question had been a qualifying site when the expenditure was incurred, or if the area in question had been such a site at that time and this Chapter had been fully in force and had applied to expenditure incurred at that time.”

(8) This subsection applies to the asset if—

(a) capital expenditure mentioned in subsection (1) would, in the absence of this section, be relievable under section 356C by reason of an election under section 356CB (treatment of expenditure not related to an established site), and

(b) capital expenditure which was incurred before the acquisition concerned, by the acquiring company or another company, in acquiring, bringing into existence or enhancing the value of the asset, either—

(i) has become relievable under section 356C by reason of an election under section 356CB, or

(ii) would be so relievable if such an election were made in respect of that expenditure.

(9) In determining for the purposes of subsection (8)(b) whether particular expenditure was incurred “before” the acquisition concerned—

(a) paragraph (b) of section 356CB(6) is to be ignored, and

(b) accordingly, that expenditure is to be taken (for the purposes of determining whether it was incurred before the acquistion concerned) to have been incurred when it was actually incurred.

(10) For the purposes of subsection (8)(b)(ii) it does not matter if an election is not in fact capable of being made.]

Textual Amendments

F102 S. 356CAA inserted (with effect in accordance with s. 61(4) of the amending Act) by Finance Act 2016 (c. 24), s. 61(3)

356CB Expenditure not related to an established site U.K.

(1) A company may make an election under this section in relation to capital expenditure incurred by it for the purposes of onshore oil-related activities if the appropriate condition is met.

(2) The appropriate condition is that at the time of the election no site can be identified as a site in relation to which the expenditure has been incurred.

(3) An election may not be made before the beginning of the third accounting period of the company after that in which the expenditure is incurred.

(4) An election must specify—

(a) the expenditure in question,

(b) a site (“the specified site”) every part of which is, or is part of, an area in which the company is a licensee, and

(c) an accounting period of the company (“the specified accounting period”).

(5) The specified accounting period must not be earlier than the accounting period in which the election is made.

(6) Where a company makes an election under this section in relation to an amount of expenditure, that amount is treated for the purposes of this Chapter as incurred by the company—

(a) in relation to the specified site, and

(b) at the beginning of the specified accounting period.

Reduction of adjusted ring fence profits U.K.

356D Reduction of adjusted ring fence profits U.K.

(1) A company's adjusted ring fence profits for an accounting period are to be reduced by the cumulative total amount of activated allowance for the accounting period (but are not to be reduced below zero).

(2) In relation to a company and an accounting period, the “cumulative total amount of activated allowance” is—

where—

A is the total of any amounts of activated allowance the company has, for any sites, for the accounting period (see section 356E(2)) or for reference periods within the accounting period (see section 356GB(1)), and

C is any amount carried forward to the period under section 356DA.

356DA Carrying forward of activated allowance U.K.

(1) This section applies where, in the case of a company and an accounting period—

(a) the cumulative total amount of activated allowance (see section 356D(2)), is greater than

(b) the adjusted ring fence profits.

(2) The difference is carried forward to the next accounting period.

F103 356DB Companies with both field allowances and onshore allowance U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F103 S. 356DB omitted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by virtue of Finance Act 2015 (c. 11), Sch. 14 para. 6

Activated and unactivated allowance: basic calculation rules U.K.

356E Activation of allowance: no change of equity share U.K.

(1) This section applies where—

(a) a company is a licensee in a licensed area for the whole or part (“the licensed part”) of an accounting period,

(b) the company's share of the equity in the site is the same throughout the accounting period or, as the case requires, throughout the licensed part of the accounting period,

(c) the licensed area is or contains a site,

(d) the company holds, for the accounting period and the site, a closing balance of unactivated allowance (see section 356EA) that is greater than zero, and

(e) the company has relevant income from the site for the accounting period.

(2) The amount of activated allowance the company has for that accounting period and that site is the smaller of—

(a) the closing balance of unactivated allowance held for the accounting period and the site;

(b) the company's relevant income for that accounting period from that site.

(3) In this Chapter “relevant income”, in relation to a site and an accounting period of a company, means production income of the company from any oil extraction activities carried on at the site that is taken into account in calculating the company's adjusted ring fence profits for the accounting period.

356EA The closing balance of unactivated allowance for an accounting period U.K.

The closing balance of unactivated allowance held by a company for an accounting period and a site is—

where—

P is the amount of onshore allowance generated by the company in the accounting period at the site (including any amount treated under section 356F(7) or 356HB(1) as generated by the company in that accounting period at that site);

Q is any amount carried forward from an immediately preceding accounting period under section 356EB(2) or from an immediately preceding reference period under section 356GC;

R is any amount deducted in accordance with section 356GD(1) (reduction of allowance if equity disposed of).

356EB Carrying forward of unactivated allowance U.K.

(1) This section applies where X is greater than Y in the case of an accounting period of a company and a site, where—

• X is the closing balance of unactivated allowance for the accounting period and the site;

• Y is the company's relevant income for the accounting period from that site.

(2) An amount equal to the difference between X and Y is treated as onshore allowance held by the company for that site for the next accounting period (and is treated as held with effect from the beginning of that period).

Transfer of allowances between sites U.K.

356F Transfer of allowances between sites U.K.

(1) This section applies if a company has, with respect to a site, an amount (“N”) of onshore allowance available to carry forward to an accounting period—

(a) under section 356EB(2), or

(b) by virtue of section 356GC(3).

(2) The company may elect to transfer the whole or part of that amount to another site (“site B”), if the appropriate conditions are met.

(3) The appropriate conditions are that—

(a) every part of site B is, or is part of, an area in which the company is a licensee, and

(b) the election is made no earlier than the beginning of the third accounting period of the company after that in which the allowance was generated.

(4) For the purposes of subsection (3)(b), a company may regard an amount of onshore allowance held by it for a site as generated in a particular accounting period if the amount does not exceed—

where—

A is the amount of onshore allowance generated in that accounting period for that site;

T is the total amount of onshore allowance generated in that period for that site that has already been transferred under this section.

(5) An election must specify—

(a) the amount of onshore allowance to be transferred;

(b) the site at which it was generated;

(c) the site to which it is transferred;

(d) the accounting period in which it was generated.

(6) Where a company makes an election under subsection (2), then—

(a) if the company elects to transfer the whole of N, no amount is available to be carried forward under section 356EB(2) or (as the case may be) by virtue of section 356GC(3);

(b) if the company elects to transfer only part of N, the amount available to be carried forward as mentioned in subsection (1) is reduced by the amount transferred.

(7) Where an amount of onshore allowance is transferred to a site as a result of an election, this Chapter has effect as if the allowance is generated at that site at the beginning of the accounting period in which the election is made.

Changes in equity share: activation of allowance U.K.

356G Introduction to sections 356GA to 356GD U.K.

(1) Sections 356GA to 356GD apply to a company in respect of an accounting period and a licensed area that is or contains a site, if the following conditions are met—

(a) the company is a licensee in the licensed area for the whole, or for part, of the accounting period;

(b) the company has different shares (greater than zero) of the equity in the licensed area at different times during the accounting period.

(2) In a case where a company has three or more different shares of the equity in a licensed area during a particular day, sections 356GA to 356GD (in particular, provisions relating to the beginning or end of a day) have effect subject to the necessary modifications.

356GA Reference periods U.K.

(1) For the purposes of sections 356GB to 356GD, the accounting period, or (if the company is not a licensee for the whole of the accounting period) the part or parts of the accounting period for which the company is a licensee, are to be divided into reference periods (each of which “belongs to” the site concerned).

(2) A reference period is a period of consecutive days that meets the following conditions—

(a) at the beginning of each day in the period, the company is a licensee in the licensed area;

(b) at the beginning of each day in the period, the company's share of the equity in the licensed area is the same;

(c) each day in the period falls within the accounting period.

356GB Activation of allowance: reference periods U.K.

(1) The amount (if any) of activated allowance that a company has with respect to a site for a reference period is the smaller of the following—

(a) the company's relevant income from the site in the reference period;

(b) the total amount of unactivated allowance that is attributable to the reference period and the site (see section 356GD).

(2) The company's relevant income from the site in the reference period is—

where—

I is the company's relevant income from the site in the whole of the accounting period;

R is the number of days in the reference period;

L is the number of days in the accounting period for which the company is a licensee in the licensed area concerned.

356GC Carry-forward of unactivated allowance from a reference period U.K.

(1) If, in the case of a reference period (“RP1”) of a company, the amount mentioned in subsection (1)(b) of section 356GB exceeds the amount mentioned in subsection (1)(a) of that section, an amount equal to the difference between those amounts is treated as onshore allowance held by the company for the site concerned for the next period.

(2) If RP1 is immediately followed by another reference period of the company (belonging to the same site), “the next period” means that reference period.

(3) If subsection (2) does not apply, “the next period” means the next accounting period of the company.

356GD Unactivated amounts attributable to a reference period U.K.

(1) For the purposes of section 356GB(1)(b), the total amount of unactivated allowance attributable to a reference period and a site is—

where—

P is the amount of allowance generated by the company in the reference period at the site (including any amount treated under section 356F(7) or 356HB(1) as generated by the company in that accounting period at that site);

Q is the amount given by subsection (2) or (3);

R is any amount to be deducted under section 356HA(1) in respect of a disposal of the whole or part of the company's share of the equity in a licensed area that is or contains the site.

(2) Where the reference period is not immediately preceded by another reference period but is preceded by an accounting period of the company, Q is equal to the amount (if any) that is to be carried forward from that preceding accounting period under section 356EB(2).

(3) Where the reference period is immediately preceded by another reference period, Q is equal to the amount carried forward by virtue of section 356GC(2).

Transfers of allowance on disposal of equity share U.K.

356H Introduction to sections 356HA and 356HB U.K.

(1) Sections 356HA and 356HB apply where a company (“the transferor”)—

(a) disposes of the whole or part of its share of the equity in a licensed area that is or contains a site;

(b) immediately before the disposal holds (unactivated) onshore allowance for the site concerned.

(2) Each company to which a share of the equity is disposed of is referred to in section 356HB as “a transferee”.

356HA Reduction of allowance if equity disposed of U.K.

(1) The following amount is to be deducted, in accordance with section 356GD(1), in calculating the total amount of unactivated allowance attributable to a reference period and a site—

where—

F is the pre-transfer total of unactivated allowance for the reference period that ends with the day on which the disposal is made;

E1 is the transferor's share of the equity in the licensed area immediately before the disposal;

E2 is the transferor's share of the equity in the licensed area immediately after the disposal.

(2) The “pre-transfer total of unactivated allowance” for a reference period is—

where P and Q are the same as in section 356GD.

356HB Acquisition of allowance if equity acquired U.K.

(1) A transferee is treated as generating at the site concerned, at the beginning of the reference period or accounting period of the transferee that begins with, or because of, the disposal, onshore allowance of the amount given by subsection (2).

(2) The amount is—

where—

R is the amount determined for the purposes of the deduction under section 356HA(1);

E3 is the share of equity in the licensed area that the transferee has acquired from the transferor;

E1 and E2 are the same as in section 356HA.

Miscellaneous U.K.

356I Adjustments U.K.

(1) This section applies if there is any alteration in a company's adjusted ring fence profits for an accounting period after this Chapter has effect in relation to the profits.

(2) Any necessary adjustments to the operation of this Chapter (whether in relation to the profits or otherwise) are to be made (including any necessary adjustments to the effect of section 356D on the profits or to the calculation of the amount to be carried forward under section 356DA).

356IA Orders U.K.

(1) The Treasury may by order substitute a different percentage for the percentage that is at any time specified in section 356C(2) (calculation of allowance as a percentage of capital expenditure).

(2) The Treasury may by order amend the number that is at any time specified in section 356CA(1) or (2) (cap on production, or estimated production, at a site for the purposes of onshore allowance).

(3) An order under subsection (1) or (2) may include transitional provision.

Interpretation U.K.

[F104 356IB “Authorisation of development”: oil fields U.K.

(1) In this Chapter a reference to authorisation of development of an oil field is a reference to a national authority—

(a) granting a licensee consent for development of the field,

(b) serving on a licensee a programme of development for the field, or

(c) approving a programme of development for the field.

(2) In this section—

• “consent for development”, in relation to an oil field, does not include consent which is limited to the purpose of testing the characteristics of an oil-bearing area,

• “development”, in relation to an oil field, means winning oil from the field otherwise than in the course of searching for oil or drilling wells, and

• “national authority” means—

  (a)

  the [F105 OGA], or

  (b)

  a Northern Ireland department.]

Textual Amendments

F104 S. 356IB inserted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2015 (c. 11), Sch. 14 para. 7

F105 Word in s. 356IB(2) substituted (1.10.2016) by The Petroleum (Transfer of Functions) Regulations 2016 (S.I. 2016/898), regs. 1(2), 15(5)

Modifications etc. (not altering text)

C5 S. 356IB(2) modified (temp.) (9.2.2018) by The Scotland Act 2016 (Onshore Petroleum) (Consequential Amendments) Regulations 2018 (S.I. 2018/79), regs. 1(2), 7(1) (with art. 2)

356J “Authorisation of development”: drilling and extraction sites U.K.

(1) References in this Chapter to authorisation of development of a site are to be interpreted as follows in relation to a drilling and extraction site that is situated in, or used in connection with, a licensed area.

(2) The references are to be read as references to a national authority—

(a) granting a licensee consent for development of the licensed area,

(b) serving on a licensee a programme of development for the licensed area, or

(c) approving a programme of development for the licensed area.

(3) References in subsection (2) to a “licensee” are to a licensee in the licensed area mentioned in subsection (1).

(4) In this section—

• “consent for development”, in relation to a licensed area, does not include consent which is limited to the purpose of testing the characteristics of an oil-bearing area;

• “development”, in relation to a licensed area, means winning oil from the licensed area otherwise than in the course of searching for oil or drilling wells;

• “national authority” means—

  (a)

  the [F106 OGA], or

  (b)

  a Northern Ireland Department.

Textual Amendments

F106 Word in s. 356J(4) substituted (1.10.2016) by The Petroleum (Transfer of Functions) Regulations 2016 (S.I. 2016/898), regs. 1(2), 15(6)

Modifications etc. (not altering text)

C6 S. 356J(4) modified (temp.) (9.2.2018) by The Scotland Act 2016 (Onshore Petroleum) (Consequential Amendments) Regulations 2018 (S.I. 2018/79), regs. 1(2), 7(2) (with art. 2)

356JA When capital expenditure is incurred U.K.

Section 5 of CAA 2001 (when capital expenditure is incurred) applies for the purposes of this Chapter as for the purposes of that Act.

356JB Other definitions U.K.

In this Chapter (except where otherwise specified)—

• “adjusted ring fence profits”, in relation to a company and an accounting period, [F107 is to be read in accordance with section 330ZA];

• “cumulative total amount of activated allowance” has the meaning given by section 356D(2);

• “licence” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act);

• “licensed area” has the same meaning as in Part 1 of OTA 1975;

• “licensee” has the same meaning as in Part 1 of OTA 1975;

• “onshore allowance” has the meaning given by section 356C(5);

• “relevant income”, in relation to an onshore site and an accounting period, has the meaning given by section 356E(3);

• “site” has the meaning given by section 356BC.]

Textual Amendments

F107 Words in s. 356JB substituted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2015 (c. 11), Sch. 14 para. 8

[F108 CHAPTER 9 U.K. Supplementary charge: cluster area allowance

Textual Amendments

F108 Pt. 8 Ch. 9 inserted (26.3.2015) by Finance Act 2015 (c. 11), Sch. 13 para. 2

Modifications etc. (not altering text)

C7 Pt. 8 Ch. 9 restricted (26.3.2015) by Finance Act 2015 (c. 11), Sch. 13 para. 6(2)

Introduction U.K.

356JC Overview U.K.

(1) This Chapter sets out how relief for certain expenditure incurred in relation to a cluster area is given by way of reduction of a company's adjusted ring fence profits.

(2) The Chapter includes provision about—

(a) the determination of cluster areas (sections 356JD and 356JDA);

(b) the meaning of investment expenditure (section 356JE);

(c) the generation of allowance by the incurring of relievable investment expenditure in relation to a cluster area (section 356JF);

(d) how allowance is activated by relevant income from the same cluster area (sections 356JH to 356JHB and 356JJ to 356JJB) in order to be available for reducing adjusted ring fence profits (sections 356JG and 356JGA);

(e) the division of an accounting period into reference periods where a company has different shares of the equity in a licensed area or sub-area at different times in the period (section 356JI);

(f) the transfer of allowance where shares of the equity in a licensed area or sub-area are disposed of (sections 356JK to 356JKB);

(g) elections to treat allowance attributable to an unlicensed part of a cluster area as if it were attributable to a licensed area or sub-area in the cluster area (section 356JL).

Determination of cluster areas U.K.

356JD Meaning of “cluster area” U.K.

(1) In this Part “cluster area” means an offshore area which the [F109 OGA] determines to be a cluster area.

(2) A cluster area is treated as not including any previously authorised oil field (or any part of such an oil field) (see section 356JDA).

(3) An area is “offshore” for the purposes of this section if the whole of it lies on the seaward side of the baselines from which the territorial sea of the United Kingdom is measured.

(4) Before determining an area to be a cluster area the [F109 OGA] must—

(a) give written notice of the proposed determination to every person who is a licensee in respect of a licensed area or sub-area which is wholly or partly included in the proposed cluster area and to any other licensee whose interests appear to the [F109 OGA] to be affected, and

(b) publish a notice of the proposed determination on a website that is, and indicates that it is, kept by or on behalf of the [F109 OGA].

(5) The [F109 OGA] must consider any representations made in writing and within 30 days of the date of the publication of the notice under subsection (4)(b) (or, in the case of representations made by a person to whom notice is given under subsection (4)(a), within 30 days of receipt of the notice, if later).

(6) A determination under this section—

(a) has effect from the day on which it is published,

(b) may be in any form the [F109 OGA] thinks appropriate, and

(c) must assign to the cluster area an identifying number or other designation.

(7) After making a determination the [F109 OGA] must—

(a) give written notice of the determination to every person who is a licensee in respect of a licensed area or sub-area which is wholly or partly included in the cluster area and any other person to whom notice of the proposed determination was given;

(b) publish a notice of the determination on a website that is, and indicates that it is, kept by or on behalf of the [F109 OGA].

(8) The [F109 OGA] may vary or revoke a determination made under this section, and subsections (4), (5), (6)(a) and (b) and (7) are to apply as if the variation or revocation were a new determination.

Textual Amendments

F109 Word in s. 356JD substituted (1.10.2016) by The Petroleum (Transfer of Functions) Regulations 2016 (S.I. 2016/898), regs. 1(2), 15(7)

356JDA Meaning of “previously authorised oil field” U.K.

(1) In section 356JD “previously authorised oil field”, in relation to a cluster area, means an oil field, other than a decommissioned oil field, whose development (in whole or in part) was authorised for the first time before the relevant day.

(2) An oil field is a “decommissioned oil field” in relation to a cluster area if, immediately before the relevant day, all assets of the oil field which are relevant assets have been decommissioned.

(3) In this section, “relevant day”, in relation to an oil field and a cluster area, means the date of publication of the first determination, or variation of a determination, under section 356JD as a result of which the oil field is (ignoring section 356JD(2)) wholly or partly included in the cluster area.

(4) Sub-paragraphs (2) to (9) of paragraph 7 of Schedule 1 to OTA 1975 apply for the purpose of determining whether relevant assets of an oil field are decommissioned as they apply for the purpose of determining whether qualifying assets of a relevant area are decommissioned.

(5) For the purposes of this section, an asset is a relevant asset of an oil field if—

(a) it has at any time been a qualifying asset (within the meaning of the Oil Taxation Act 1983) in relation to any participator in the field, and

(b) it has at any time been used for the purpose of winning oil from the field.

(6) In this section references to authorisation of development of an oil field are to be interpreted in accordance with section 356IB.

(7) See also paragraph 5 of Schedule 13 to FA 2015, as a result of which certain proposed determinations made before the day on which that Act is passed are treated as made under section 356JD for the purposes of this Chapter.

Meaning of “investment expenditure” U.K.

356JE Meaning of “investment expenditure” U.K.

(1) For the purposes of this Chapter, expenditure incurred by a company is “investment” expenditure only if it is—

(a) capital expenditure, or

(b) expenditure of such other description as may be prescribed by the Treasury by regulations.

(2) Regulations under subsection (1)(b) may provide for any of the provisions of the regulations to have effect in relation to expenditure incurred before the regulations are made.

(3) But subsection (2) does not apply to any provision of amending or revoking regulations which has the effect that expenditure of any description ceases to be investment expenditure.

(4) Regulations under subsection (1)(b) may—

(a) make different provision for different purposes;

(b) make transitional provision and savings.

Cluster area allowance U.K.

356JF Generation of cluster area allowance U.K.

(1) Subsection (2) applies where a company—

(a) is a licensee in a licensed area or sub-area which is wholly or partly included in a cluster area, and

(b) incurs any relievable investment expenditure on or after 3 December 2014 in relation to the cluster area.

(2) The company is to hold an amount of allowance equal to 62.5% of the amount of the expenditure.

Allowance held under this Chapter is called “cluster area allowance”.

(3) For the purposes of this section investment expenditure incurred by a company is “relievable” only if, and so far as, it is incurred for the purposes of oil-related activities (see section 274).

(4) Subsections (1) to (3) are subject to section 356JFA (which prevents expenditure on the acquisition of an asset from being relievable in certain circumstances).

(5) Cluster area allowance is said in this Chapter to be “generated” at the time when the investment expenditure is incurred (see section 356JN) and is referred to as being generated—

(a) “by” the company concerned;

(b) “in” the cluster area concerned.

(6) Where—

(a) investment expenditure is incurred only partly for the purposes of oil-related activities, or

(b) the oil-related activities for the purposes of which investment expenditure is incurred are carried on only partly in relation to a particular cluster area,

the expenditure is to be attributed to the activities or area concerned on a just and reasonable basis.

356JFA Expenditure on acquisition of asset: disqualifying conditions U.K.

(1) Investment expenditure incurred by a company (“the acquiring company”) on the acquisition of an asset is not relievable expenditure for the purposes of section 356JF if either of the disqualifying conditions in this section applies to the asset.

(2) The first disqualifying condition is that investment expenditure incurred before the acquisition, by the acquiring company or another company, in acquiring, [F110 leasing,] bringing into existence or enhancing the value of the asset was relievable under section 356JF.

(3) The second disqualifying condition is that—

(a) the asset—

(i) is the whole or part of the equity in a licensed area or sub-area, or

(ii) is acquired in connection with a transfer to the acquiring company of the whole or part of the equity in a licensed area or sub-area,

(b) expenditure was incurred, at any time before the acquisition, by the acquiring company or another company, in acquiring, [F111 leasing,] bringing into existence or enhancing the value of the asset, and

(c) any of that expenditure—

(i) related to the cluster area, and

(ii) would have been relievable under section 356JF if this Chapter had applied to expenditure incurred at that time.

(4) For the purposes of subsection (3)(a)(ii), it does not matter whether the asset is acquired at the time of the transfer.

[F112 (5) In this section any reference to expenditure which was incurred by a company in “leasing” an asset is to expenditure incurred by the company under an agreement under which the asset was leased to the company.]

Textual Amendments

F110 Word in s. 356JFA(2) inserted (with effect in accordance with s. 62(5) of the amending Act) by Finance Act 2016 (c. 24), s. 62(2)

F111 Word in s. 356JFA(3)(b) inserted (with effect in accordance with s. 62(5) of the amending Act) by Finance Act 2016 (c. 24), s. 62(3)

F112 S. 356JFA(5) inserted (with effect in accordance with s. 62(5) of the amending Act) by Finance Act 2016 (c. 24), s. 62(4)

Reduction of adjusted ring fence profits U.K.

356JG Reduction of adjusted ring fence profits U.K.

(1) A company's adjusted ring fence profits for an accounting period are to be reduced by the cumulative total amount of activated allowance for the accounting period (but are not to be reduced below zero).

(2) In relation to a company and an accounting period, the “cumulative total amount of activated allowance” is—

where—

A is the total of any amounts of activated allowance the company has, for any cluster areas, for the accounting period (see section 356JH(2)) or for reference periods within the accounting period (see section 356JJ(1)), and

C is any amount carried forward to the period under section 356JGA.

356JGA Carrying forward of activated allowance U.K.

(1) This section applies where, in the case of a company and an accounting period, the cumulative total amount of activated allowance (see section 356JG(2)) is greater than the adjusted ring fence profits.

(2) The difference is carried forward to the next accounting period.

Activated and unactivated allowance: basic calculation rules U.K.

356JH Activation of allowance: no change of equity share U.K.

(1) This section applies where—

(a) for the whole or part of an accounting period, a company is a licensee in a licensed area or sub-area which is wholly or partly included in a cluster area,

(b) the accounting period is not divided into reference periods (see section 356JI),

(c) the company holds, for the accounting period and the cluster area, a closing balance of unactivated allowance (see section 356JHA) which is greater than zero, and

(d) the company has relevant income from the cluster area for the accounting period.

(2) The amount of activated allowance the company has for that accounting period and that cluster area is the smaller of—

(a) the closing balance of unactivated allowance held for the accounting period and the cluster area;

(b) [F113 the total amount of] the company's relevant income for that accounting period from that cluster area.

[F114 (3) For the purposes of this Chapter, income is relevant income of a company from a cluster area for an accounting period if it is—

(a) production income of the company from any oil extraction activities carried on in that area that is taken into account in calculating the company's adjusted ring fence profits for the accounting period, or

(b) income that—

(i) is income of such description (whether or not relating to the cluster area) as may be prescribed by the Treasury by regulations, and

(ii) is taken into account as mentioned in paragraph (a).

(4) The Treasury may by regulations make such amendments of this Chapter as the Treasury consider appropriate in consequence of, or in connection with, any provision contained in regulations under subsection (3)(b).

(5) Regulations under subsection (3)(b) or (4) may provide for any of the provisions of the regulations to have effect in relation to accounting periods ending before (or current when) the regulations are made.

(6) But subsection (5) does not apply to—

(a) any provision of amending or revoking regulations under subsection (3)(b) which has the effect that income of any description is to cease to be treated as relevant income of a company from a cluster area for an accounting period, or

(b) provision made under subsection (4) in consequence of or in connection with provision within paragraph (a).

(7) Regulations under this section may make transitional provision or savings.

(8) Regulations under this section may not be made unless a draft of the instrument containing them has been laid before, and approved by a resolution of, the House of Commons.]

Textual Amendments

F113 Words in s. 356JH(2)(b) inserted (15.9.2016) by Finance Act 2016 (c. 24), s. 63(2)

F114 Ss. 356JH(3)-(8) substituted for s. 356JH(3) (15.9.2016) by Finance Act 2016 (c. 24), s. 63(3)

356JHA The closing balance of unactivated allowance for an accounting period U.K.

The closing balance of unactivated allowance held by a company for an accounting period and a cluster area is—

where—

P is the amount of cluster area allowance generated by the company in the cluster area in the accounting period (including any amount treated under section 356JKB(1) as generated by the company in that cluster area in that accounting period);

Q is any amount carried forward from an immediately preceding accounting period under section 356JHB(1) or from an immediately preceding reference period under section 356JJB(1).

356JHB Carrying forward of unactivated allowance U.K.

(1) If, in the case of an accounting period of a company and a cluster area, the amount given by subsection (2) is greater than zero, that amount is treated as cluster area allowance held by the company for that cluster area for the next period (and is treated as held with effect from the beginning of that period).

(2) The amount is—

where—

U is the closing balance of unactivated allowance held for the accounting period and the cluster area;

A is the amount of activated allowance that the company has for the accounting period and the cluster area (see section 356JH(2));

T is the sum of any amounts transferred by the company under section 356JK in connection with a disposal or disposals made on the day following the end of the accounting period.

(3) If the accounting period is followed by a reference period of the company belonging to that cluster area (see section 356JI), “the next period” means that period.

(4) If subsection (3) does not apply “the next period” means the next accounting period of the company.

Changes in equity share: reference periods U.K.

356JI Reference periods U.K.

(1) This section applies where—

(a) a company is a licensee for the whole or part of an accounting period in one or more licensed areas or sub-areas (“the relevant areas”) which are wholly or partly included in a cluster area, and

(b) in the case of at least one of the relevant areas, the company has different shares of the equity in the area on different days in the accounting period.

(2) For the purposes of this Chapter, the accounting period is to be divided into as many consecutive periods (called “reference periods”) as are necessary to secure that—

(a) a reference period begins with the first day of the accounting period,

(b) a reference period begins with the date of each disposal or acquisition of a share of the equity in any of the relevant areas that is made by the company in that accounting period (not including acquisitions or disposals made on the first day of the accounting period), and

(c) a reference period ends with the last day of the accounting period.

(3) Each such reference period “belongs to” the cluster area concerned.

Changes in equity share: activation of allowance U.K.

356JJ Activation of allowance: reference periods U.K.

(1) The amount (if any) of activated allowance that a company has for a cluster area for a reference period is the smaller of the following—

(a) the company's relevant income from the cluster area for the reference period;

(b) the total amount of unactivated allowance that is attributable to the reference period and the cluster area (see section 356JJA).

(2) The company's relevant income from the cluster area for the reference period is so much of the company's relevant income from the cluster area for the accounting period (see section 356JH(3)) as arises in the reference period.

356JJA Unactivated amounts attributable to a reference period U.K.

(1) For the purposes of section 356JJ(1)(b), the total amount of unactivated allowance attributable to a reference period and a cluster area is—

where—

P is the amount of allowance generated by the company in the reference period in the cluster area (including any amount treated under section 356JKB(1) as generated by the company in that area in that reference period);

Q is the amount given by subsection (2) or (3).

(2) Where the reference period is not immediately preceded by another reference period but is preceded by an accounting period of the company, Q is equal to the amount (if any) that is to be carried forward from that preceding accounting period under section 356JHB(1).

(3) Where the reference period is immediately preceded by another reference period, Q is equal to the amount (if any) carried forward under section 356JJB(1).

356JJB Carry-forward of unactivated allowance from a reference period U.K.

(1) If, in the case of a reference period (“RP1”) of a company, the amount given by subsection (2) is greater than zero, that amount is treated as cluster area allowance held by the company for the cluster area concerned for the next period.

(2) The amount is—

where—

U is the total amount of unactivated allowance attributable to the reference period and the cluster area (see section 356JJA);

A is the amount of activated allowance that the company has for the cluster area for the reference period (see section 356JJ);

T is the sum of any amounts transferred by the company under section 356JK in connection with a disposal or disposals made on the day following the end of the reference period.

(3) If RP1 is immediately followed by another reference period of the company (belonging to the same cluster area), “the next period” means that reference period.

(4) If subsection (3) does not apply, “the next period” means the next accounting period of the company.

Transfers of allowance on disposal of equity share U.K.

356JK Disposal of equity share: transfer of allowance U.K.

(1) Subsections (2) and (3) apply where—

(a) a company (“the transferor”) makes a disposal, on the day following the end of an accounting period or reference period, of the whole or part of its share of the equity in a licensed area or sub-area which is wholly or partly included in a cluster area (“the relevant cluster area”), and

(b) the maximum transferable amount is greater than zero.

Each company to which a share of the equity is disposed of is referred to in this section as a “transferee”.

(2) The transferor may, by an election, transfer to the transferee (or transferees) a specified amount of cluster area allowance (greater than zero) which—

(a) is not less than the minimum transferable amount, and

(b) is not more than the maximum transferable amount.

(3) If the transferor does not make an election under subsection (2), the minimum transferable amount of cluster area allowance (if greater than zero) is transferred to the transferee (or transferees).

(4) An election under subsection (2)—

(a) must be made within the 60 days beginning with the date of the disposal,

(b) must—

(i) specify the date of the disposal and the amount of cluster area allowance transferred, and

(ii) identify the transferees, and

(c) is irrevocable.

(5) The minimum transferable amount is—

where—

G is so much of the total generated allowance for the relevant cluster area (see subsection (6)) as is attributable on a just and reasonable basis to the licensed area or sub-area mentioned in subsection (1);

A is the total of any amounts of allowance which have, in relation to any accounting period or reference period of the transferor ending before the date of the disposal, been activated under section 356JH or 356JJ in relation to the relevant cluster area;

E1 is the transferor's share of the equity in the licensed area or sub-area immediately before the disposal;

E2 is the transferor's share of the equity in the licensed area or sub-area immediately after the disposal.

(6) In the definition of “G” in subsection (5), “the total generated allowance for the relevant cluster area” means the total of—

(a) all amounts of cluster area allowance generated by the transferor in that cluster area before the date of the disposal, and

(b) any amounts treated under section 356JKB(1) as so generated on the date of the disposal.

(7) The maximum transferable amount is—

where—

M is the smaller of—

(a)

G (as defined in subsection (5)), and

(b)

the transferor's pre-transfer total of unactivated allowance for the relevant cluster area;

E1 and E2 have the same meaning as in subsection (5).

(8) In subsection (7) the transferor's “pre-transfer total of unactivated allowance for the relevant cluster area” means—

where—

P and Q are—

(a)

if the disposal is made on the day following the end of an accounting period, the same as in section 356JHA (in its application to that period), or

(b)

if the disposal is made on the day following the end of a reference period, the same as in section 356JJA(1) (in its application to that period);

A is—

(a)

if the disposal is made on the day following the end of an accounting period, the same as in section 356JHB(2) (in its application to that period), or

(b)

if the disposal is made on the day following the end of a reference period, the same as in section 356JJB(2) (in its application to that period);

S is the total of any amounts of allowance transferred by the transferor in connection with any prior disposals (see section 356JKA) made in relation to the relevant cluster area on the day on which the disposal is made.

(9) For the effect of a transfer of cluster area allowance in relation to the transferor, see—

(a) for disposals made on the day following the end of an accounting period, section 356JHB (reduction of unactivated allowance carried forward from accounting period), or

(b) for disposals made on the day following the end of a reference period, section 356JJB (reduction of unactivated allowance carried forward from reference period).

356JKA More than one disposal on a single day U.K.

(1) Subsections (2) to (4) apply where a company makes, on a single day and in relation to a single cluster area, more than one disposal falling within section 356JK(1)(a).

(2) The company may, by an election, choose the order of priority of the disposals for the purposes of section 356JK(8).

(3) A disposal which is placed higher in the order of priority than another disposal is a “prior disposal” in relation to the other for the purposes of the definition of “S” in section 356JK(8).

(4) An election under subsection (2) is irrevocable.

356JKB Effect of transfer of allowance for transferee U.K.

(1) Where a transfer of cluster area allowance is made under section 356JK, each transferee is treated as generating in the cluster area concerned, at the beginning of the accounting period or reference period of the transferee that begins with the day on which the disposal is made, cluster area allowance of the amount given by subsection (2).

(2) The amount is—

where—

T is the total amount of cluster area allowance transferred in connection with the disposal;

E3 is the share of equity in the licensed area or sub-area that the transferee has acquired from the transferor;

E1 and E2 are the same as in section 356JK(5).

(3) In this section references to the transferor and the transferees are to be read in accordance with section 356JK(1).

Use of allowance attributable to unlicensed area U.K.

356JL Use of allowance attributable to unlicensed area U.K.

(1) Subsection (2) applies where—

(a) a company (“C”) disposes of the whole or part of its share of the equity in a licensed area or sub-area (“area A”),

(b) that area is wholly or partly included in a cluster area, and

(c) C has generated in the cluster area, on or before the day of the disposal, cluster area allowance which is wholly or partly attributable to an unlicensed area (“area U”) in the cluster area.

(2) C may, by an election, assign to area A, or to any other relevant licensed area or sub-area in the cluster area, so much of the total of generated allowance for the cluster area as is attributable to area U.

(3) The reference in subsection (2) to a “relevant” licensed area or sub-area is to a licensed area or sub-area in which C is a licensee.

(4) In subsection (2), “the total of generated allowance for the cluster area” means the total of all amounts of cluster area allowance generated by C in the cluster area at any time on or before the day of the disposal (including any amounts treated under section 356JKB(1) as so generated).

(5) An election under this section must be made within the 60 days beginning with the date of the disposal and must specify—

(a) the amount of cluster area allowance transferred,

(b) the unlicensed area to which it was attributable, and

(c) the licensed area or sub-area to which it is assigned.

(6) An election under this section is irrevocable.

(7) Where an amount of cluster area allowance is assigned to a licensed area or sub-area by an election under this section, that amount is taken, for the purposes of this Chapter—

(a) to have been attributable to that licensed area or sub-area with effect from the beginning of the day on which the disposal is made, and

(b) never to have been attributable to area U.

(8) In this section—

• “attributable” means attributable on a just and reasonable basis;

• “unlicensed area” means an area which is not (and is not part of) a licensed area or sub-area.

Miscellaneous U.K.

356JM Adjustments U.K.

(1) This section applies if there is any alteration in a company's adjusted ring fence profits for an accounting period after this Chapter has effect in relation to the profits.

(2) Any necessary adjustments to the operation of this Chapter (whether in relation to the profits or otherwise) are to be made (including any necessary adjustments to the effect of section 356JG on the profits or to the calculation of the amount to be carried forward under section 356JGA).

356JMA Regulations amending percentage in section 356JF(2) U.K.

(1) The Treasury may by regulations substitute a different percentage for the percentage that is at any time specified in section 356JF(2) (calculation of allowance as a percentage of investment expenditure).

(2) Regulations under subsection (1) may include transitional provision.

Interpretation U.K.

356JN When capital expenditure is incurred U.K.

(1) Section 5 of CAA 2001 (when capital expenditure is incurred) applies for the purposes of this Chapter as for the purposes of that Act.

(2) Regulations under section 356JE(1)(b) may make provision about when any expenditure that is investment expenditure as a result of the regulations is to be treated for the purposes of this Chapter as incurred.

356JNA Licensed sub-areas U.K.

Where any person is entitled to a share of equity in a licensed area which relates to part only of that area—

(a) that part is referred to in this Chapter as a “licensed sub-area”, and

(b) the share of equity is referred to in this Chapter as a share of equity in the licensed sub-area,

and references to a licensee in a licensed sub-area are to be interpreted accordingly.

356JNB Other definitions U.K.

In this Chapter (except where otherwise specified)—

• “adjusted ring fence profits”, in relation to a company and an accounting period, is to be read in accordance with section 330ZA;

• “cluster area allowance” has the meaning given by section 356JF(2);

• “cumulative total amount of activated allowance” has the meaning given by section 356JG(2);

• “licence” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act);

• “licensed area” has the same meaning as in Part 1 of OTA 1975;

• “licensee” has the same meaning as in Part 1 of OTA 1975 (but see also section 356JNA);

• “relevant income”, in relation to a cluster area and an accounting period, has the meaning given by section 356JH(3).]