Finance (No. 2) Bill (HC Bill 190)

Application and interpretation

329B Qualifying companies

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

(a) carries on a ring fence trade, or

(b) 5is 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”.

329C Onshore and offshore oil-related activities

(1) 10This section applies for the purposes of this Chapter.

(2) “Onshore oil-related activities” has the same meaning as in Chapter
8 (supplementary charge: onshore allowance) (see section 356BA).

(3) “Offshore oil-related activities” means oil-related activities that are
not onshore oil-related activities.

329D 15Accounting periods and straddling periods

(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,

• 20“post-commencement period” means an accounting period
  ending on or after 5 December 2013—

  (a)

  which is the commencement period, or

  (b)

  which ends after the commencement period, and

• “pre-commencement period” means an accounting period
  25ending—

  (a)

  on or after 5 December 2013, and

  (b)

  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
30having 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
35incurred.

(3) In this Chapter, “straddling period” means an accounting period
beginning before and ending on or after 5 December 2013.

329E The relevant percentage

(1) For the purposes of this Chapter, the relevant percentage for an
40accounting period is 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.

329F Restrictions on accounting periods for which additional supplement
may be claimed

(1) A company may claim additional supplement under this Chapter in
respect of no more than 4 accounting periods.

(2) 5The accounting periods in respect of which claims are made need not
be consecutive.

(3) The additional supplement under this Chapter—

(a) is additional to any supplement allowed under Chapter 5,
but

(b) 10may only be claimed for accounting periods which fall after 6
accounting periods for which supplement is allowed as a
result of claims by the company under Chapter 5.

329G Qualifying pre-commencement onshore expenditure

(1) For the purposes of this Chapter, expenditure is “qualifying pre-
15commencement onshore expenditure” if it meets Conditions A to D.

(2) Condition A is that the expenditure is incurred on or after 5
December 2013.

(3) Condition B is that the expenditure is incurred in the course of oil
extraction activities which are onshore oil-related activities.

(4) 20Condition 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 that ring fence trade.

(5) Condition D is that the expenditure—

(a) is subsequently allowable as a deduction in calculating the
25profits 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
30is “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
35under section 1054 of that Act in respect of that expenditure.

(7) In the case of any qualifying pre-commencement onshore
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.

(8) 40In the case of any qualifying pre-commencement onshore
expenditure which is relevant R&D expenditure incurred by a large
company, the amount of that expenditure is treated for the purposes
of this Chapter as being equal to 125% of its actual amount.

(9) In subsection (8) “relevant R&D expenditure incurred by a large
company” means qualifying Chapter 5 expenditure, as defined in
section 1076 of CTA 2009.

329H Unrelieved group ring fence profits

5In this Chapter “unrelieved group ring fence profits” has the same
meaning as in Chapter 5 (see sections 313 and 314).

Pre-commencement additional supplement

329I Additional supplement in respect of a pre-commencement accounting
period

(1) 10If—

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

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

15the company may claim additional supplement under this section
(“pre-commencement additional supplement”) in respect of one or
more pre-commencement periods.

This is subject to section 329F(3)(b).

This is subject to section 329F(3)(b).

(2) 20Any pre-commencement additional 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) 25which is allowable as a deduction in calculating the profits of
the ring fence trade for that period.

(3) The amount of the additional 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
30amount for that period.

(4) Sections 329J to 329M have effect for the purpose of determining the
reference amount for a pre-commencement period.

(5) If a pre-commencement period is a period of less than 12 months, the
amount of the additional supplement for the period (apart from this
35subsection) is to be reduced proportionally.

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

(7) Paragraph 74 of Schedule 18 to FA 1998 (company tax returns etc:
40time limit for claims for group relief) applies in relation to a claim for
pre-commencement additional supplement as it applies in relation to
a claim for group relief.

329J The mixed pool of qualifying pre-commencement onshore
expenditure and supplement previously allowed

(1) 45For the purpose of determining the amount of any pre-
commencement additional 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) qualifying pre-commencement onshore expenditure,

(b) pre-commencement supplement under Chapter 5, and

(c) pre-commencement additional supplement under this
5Chapter.

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

(a) the company’s qualifying pre-commencement onshore
expenditure, allocated to the pool for each pre-
commencement period in accordance with subsection (3),

(b) 10the company’s pre-commencement supplement allowed
under Chapter 5, allocated to the pool in accordance with
subsections (4) to (7), and

(c) the company’s pre-commencement additional supplement
allowed under this Chapter, allocated to the pool in
15accordance with subsection (8).

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

Step 1

20Count as eligible expenditure for that period so much of the
qualifying pre-commencement onshore expenditure mentioned in
section 329I(1) as was incurred in that period.

Step 2

Find the total of all the eligible expenditure for that period (amount
25E).

Step 3

If section 329K (reduction in respect of disposal receipts under CAA
2001) applies, reduce amount E in accordance with that section.

Step 4

30If section 329L (reduction in respect of unrelieved group ring fence
profits) 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.

35And 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 under
Chapter 5 in respect of a pre-commencement period, the appropriate
proportion of that supplement is to be taken to have been added to
40the pool in that period.

(5) “The appropriate proportion” means—

(a) if, before the end of the pre-commencement period, the
company has incurred qualifying pre-commencement
expenditure (within the meaning of section 312) on offshore
45oil-related activities, such proportion of the pre-
commencement supplement under Chapter 5 as it is just and
reasonable to attribute (directly or indirectly) to the
company’s qualifying pre-commencement onshore
expenditure, and

(b) 50in any other case, 100%.

(6) In the case of a straddling period—

(a) the appropriate proportion of the pre-commencement
supplement allowed on a claim under Chapter 5 in respect of
the period is apportioned between so much of that period as
5falls before 5 December 2013 and so much of it as falls on or
after that date, on the basis of the number of days in each part,
and

(b) only so much of the appropriate proportion of the
supplement as is apportioned to the later period is taken to
10have been added to the pool under subsection (4).

(7) But if the basis of the apportionment in subsection (6)(a) 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.

(8) 15If any pre-commencement additional supplement is allowed on a
claim under this Chapter 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.

329K Reduction in respect of disposal receipts under CAA 2001

(1) 20This section applies in the case of the qualifying company if—

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

(b) it would, on the relevant assumption, be entitled to an
25allowance 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
30disposal value 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) 35when the event giving rise to the disposal value occurred.

(3) For the purpose of allocating qualifying pre-commencement onshore
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) 40taking 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.

(4) Where the asset represented by the qualifying pre-commencement
45onshore expenditure is a mixed-activities asset, subsection (3)
applies as if the disposal value required to be brought into account
as mentioned in subsection (1)(d) were such proportion of the actual
disposal value as is just and reasonable having regard to that
expenditure.

(5) The asset is a “mixed-activities asset” if it also represents expenditure
on offshore oil-related activities which is incurred by the company in
a pre-commencement period and in respect of which the company
would, on the relevant assumption, be entitled to an allowance
5under any provision of CAA 2001.

329L Reduction in respect of unrelieved group ring fence profits

(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 onshore
10expenditure 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 329K
(“the amount of the net onshore expenditure”), and

(b) reduce the amount of the net onshore expenditure (but not
15below 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 the pre-commencement period is a straddling period, the
unrelieved group ring fence profits for that period are to be
20determined as if the period began on 5 December 2013 and ended at
the same time as the straddling period.

(4) Subsection (5) applies where in the pre-commencement period the
company carries on both onshore oil-related activities and offshore
oil related activities.

(5) 25The sum to be set against the net onshore expenditure under
subsection (2)(b) is first to be reduced (but not below nil) by the
amount of the company’s net offshore expenditure for the period.

(6) “The net offshore expenditure” of the company for the period is
determined as follows—

30Step 1

Determine the amount of the company’s total pre-commencement
offshore expenditure incurred in the period.

Step 2

Make any reduction in that amount required by subsection (9).

35So much as remains is the net offshore expenditure of the company
for the period.

So much as remains is the net offshore expenditure of the company
for the period.

(7) “Pre-commencement offshore expenditure” means expenditure
40which—

(a) is incurred in the course of oil extraction activities which are
offshore oil-related activities, and

(b) meets Conditions A, C and D in section 329G.

(8) Subsection (9) applies if—

(a) 45the qualifying company incurs pre-commencement offshore
expenditure in respect of a ring fence trade in any pre-
commencement period,

(b) it would, on the relevant assumption in section 329K, 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
5expenditure in any pre-commencement period, and

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

(9) For the purposes of Step 2 in subsection (6)—

(a) 10find 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) the amount of pre-commencement offshore
expenditure for any pre-commencement period by setting
15against it so much of amount D as does not fall to be set
against that total for a later pre-commencement period.

(10) Where the asset represented by the pre-commencement offshore
expenditure is a mixed-activities asset, subsection (9) applies as if the
disposal value required to be brought into account as mentioned in
20subsection (8)(d) were such proportion of the actual disposal value
as is just and reasonable having regard to that expenditure.

(11) The asset is a “mixed-activities asset” if it also represents expenditure
on onshore oil-related activities which is incurred by the company in
a pre-commencement period and in respect of which the company
25would, on the relevant assumption in section 329K, be entitled to an
allowance under any provision of CAA 2001.

329M The reference amount for a pre-commencement period

For the purposes of section 329I, the reference amount for a pre-
commencement period is the amount in the pool at the end of the
30period—

(a) after the addition to the pool of any qualifying pre-
commencement onshore expenditure allocated to the pool for
that period in accordance with section 329J(3), but

(b) before determining, and adding to the pool, the amount of
35any pre-commencement additional supplement claimed in
respect of the period under this Chapter.

Post-commencement additional supplement

329N Supplement in respect of post-commencement period

(1) A qualifying company which incurs an onshore ring fence loss (see
40section 329P) in any post-commencement period may claim
supplement under this section (“post-commencement additional
supplement”) in respect of—

(a) that period, or

(b) any subsequent accounting period in which it carries on its
45ring fence trade.

(2) Any post-commencement additional supplement allowed on a claim
in respect of a post-commencement period is to be treated for the

purposes of the Corporation Tax Acts (other than the post-
commencement additional supplement provisions) as if it were a
loss—

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

(b) 5which falls in whole to be used under section 45 (carry
forward of 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:
10time limit for claims for group relief) applies in relation to a claim for
post-commencement additional supplement as it applies in relation
to a claim for group relief.

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

329O 15Amount of post-commencement additional supplement for a post-
commencement period

(1) The amount of the post-commencement additional supplement for
any post-commencement period in respect of which a claim under
section 329N is made is the relevant percentage for that period of the
20reference amount for that period.

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

(3) If the post-commencement period is a period of less than 12 months,
the amount of the post-commencement additional supplement for
25the period (apart from this subsection) is to be reduced
proportionally.

329P Onshore ring fence losses

(1) If—

(a) in a post-commencement period (“the period of the loss”) a
30qualifying company carrying on a ring fence trade consisting
solely of onshore oil-related activities incurs a loss in the
trade, and

(b) some or all of the loss falls to be used under section 45 (carry
forward of trade loss against subsequent profits) to reduce
35trading income from the trade in succeeding accounting
periods,

so much of the loss as falls to be so used is an “onshore ring fence
loss” of the company.

This is subject to subsection (4).

40This is subject to subsection (4).

(2) If—

(a) in a post-commencement period (“the period of the loss”) a
qualifying company carrying on a ring fence trade consisting
of both onshore oil-related activities and offshore oil-related
45activities incurs a loss in the trade, and

(b) some or all of the loss falls to be used under section 45 (carry
forward of trade loss against subsequent profits) to reduce

trading income from the trade in succeeding accounting
periods,

the appropriate proportion of so much of the loss as falls to be so
used is an “onshore ring fence loss” of the company.

This is subject to subsection (4).

5This is subject to subsection (4).

(3) “The appropriate proportion” means such proportion as it is just and
reasonable to attribute to the company’s onshore oil-related
activities carried out in the course of its ring fence trade.

(4) In the case of a straddling period—

(a) 10the amount of the onshore ring fence loss determined under
subsection (1) or (2) in respect of the period is apportioned
between so much of that period as falls before 5 December
2013 and so much of it as falls on or after that date, on the
basis of the number of days in each part, and

(b) 15only so much of the loss as is apportioned to the later part of
the period is an onshore ring fence loss of the company for
the straddling period.

(5) But if the basis of the apportionment in subsection (4)(a) would work
unjustly or unreasonably in the company’s case, the company may
20elect for the apportionment to be made on another basis that is just
and reasonable and specified in the election.

(6) In determining for the purposes of the post-commencement
additional supplement provisions how much of a loss incurred in a
ring fence trade falls to be used as mentioned in subsection (1)(b) or
25(2)(b), the following assumptions are to be made.

(7) 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 post-commencement periods which are earlier than
30the period of the loss.

(8) 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.

(9) This section has effect for the purposes of the post-commencement
35additional supplement provisions.

329Q The onshore ring fence pool

(1) For the purpose of determining the amount of any post-
commencement additional supplement, a qualifying company is to
be taken at all times in its post-commencement periods to have a
40continuing mixed pool (the “onshore ring fence pool”) of—

(a) the company’s onshore ring fence losses,

(b) post-commencement supplement under Chapter 5,

(c) post-commencement additional supplement under this
Chapter.

(2) 45The onshore ring fence pool continues even if the amount in it is nil.

(3) The onshore ring fence pool consists of—

(a) the company’s onshore ring fence losses, allocated to the pool
in accordance with subsection (4)(a),

(b) the company’s post-commencement supplement allowed
under Chapter 5, allocated to the pool in accordance with
5subsections (4)(b) and (5) to (7), and

(c) the company’s post-commencement additional supplement
allowed under this Chapter, allocated to the pool in
accordance with subsection (4)(c).

(4) The allocation to the pool is made as follows—

(a) 10the amount of an onshore ring fence loss is added to the pool
in the period of the loss,

(b) if any post-commencement supplement is allowed on a claim
under Chapter 5 in respect of a post-commencement period,
the appropriate proportion of the amount of that supplement
15is added to the pool in that period, and

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

(5) 20“The appropriate proportion” is—

(a) if the ring fence trade carried on by the company includes, or
has at any time included, offshore oil-related activities, such
proportion of the supplement as it is just and reasonable to
attribute (directly or indirectly) to the company’s onshore oil-
25related activities carried on in the period for which the
supplement is allowed or an earlier post-commencement
period, and

(b) in any other case, 100%.

(6) In the case of a straddling period—

(a) 30the appropriate proportion of the post-commencement
supplement allowed on a claim under Chapter 5 in respect of
the period is apportioned between so much of that period as
falls before 5 December 2013 and so much of it as falls on or
after that date, on the basis of the number of days in each part,
35and

(b) only so much of the appropriate proportion of the
supplement as is apportioned to the later period is added to
the pool under subsection (4)(b).

(7) But if the basis of the apportionment in subsection (6)(a) would work
40unjustly 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

(8) The amount in the onshore ring fence pool is subject to reductions in
accordance with the following provisions of this Chapter.

(9) 45If a reduction in the amount in the onshore ring fence pool falls to be
made in any accounting period, the reduction is made—

(a) after the addition to the pool of—