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

(i) the amount of any onshore ring fence losses allocated
to the pool in that period in accordance with
subsection (4)(a), and

(ii) any amount of post-commencement supplement
5under Chapter 5 claimed in respect of the period and
allocated to the pool in accordance with subsection
(4)(b), but

(b) before determining and adding to the pool under subsection
(4)(c) the amount of any post-commencement additional
10supplement under this Chapter claimed in respect of the
period,

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

329R Reductions in respect of utilised onshore ring fence losses

(1) If one or more losses incurred by a qualifying company in its ring
15fence trade in a post-commencement period are used under section
45 (carry forward of trade loss against subsequent trade profits) to
reduce any profits of a post-commencement period, a reduction is to
be made in that period in accordance with this section.

(2) To the extent that the losses used as mentioned in subsection (1) are
20onshore ring fence losses, the amount in the onshore ring fence pool
is to be reduced (but not below nil) by setting against it a sum equal
to such amount of those onshore ring fence losses as is so used.

(3) For the purposes of determining the extent to which losses used as
mentioned in subsection (1) are onshore ring fence losses, relevant
25offshore losses are to be treated as so used in priority to onshore ring
fence losses.

(4) For this purpose “relevant offshore loss” means so much (if any) of a
loss used as mentioned in subsection (1) as is given by—

30where—

• X is the amount of the loss so used, and

• Y is so much of that loss as (ignoring section 329P(4)) is an
  onshore ring fence loss.

(5) In the case of a loss incurred in a straddling period—

(a) 35the amount of the relevant offshore loss 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) only so much of the loss as is apportioned to the later part of
40the period is a relevant offshore loss of the company for the
straddling period.

(6) But if the basis of the apportionment in subsection (5)(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
45and reasonable and specified in the election.

329S Reductions in respect of unrelieved group ring fence profits

(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) 5After making any reductions that fall to be made in accordance with
section 329R, the remaining amount in the onshore 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.

10This is subject to subsection (4).

This is subject to subsection (4).

(3) If the post-commencement period is a straddling period, the
unrelieved group ring fence profits for that period are to be
determined as if the period began on 5 December 2013 and ended at
15the same time as the straddling period.

(4) If the ring fence trade carried on by the company includes, or has at
any time included, offshore oil-related activities, the sum to be set
against the onshore ring fence pool under subsection (2) is first to be
reduced by the notional offshore loss pool.

(5) 20“The notional offshore loss pool” means—

(a) the sum of the relevant offshore losses (see section 329R(4))
for the post-commencement period mentioned in subsection
(1) and earlier post-commencement periods, less

(b) the sum of—

(i) 25so much of those losses as is to be treated (see section
329R(3)) as used as mentioned in section 329R, and

(ii) any reductions previously made under subsection (2)
of this section.

329T The reference amount for a post-commencement period

30For the purposes of section 329O the reference amount for a post-
commencement period is so much of the amount in the onshore ring
fence pool as remains after making any reductions required by
sections 329R and 329S.”

2 In section 270 of CTA 2010 (overview of Part 8), after subsection (5) insert—

“(5A) 35Chapter 5A makes provision about onshore additional ring fence
expenditure supplement.”

3 In Schedule 4 to CTA 2010 (index of defined expressions), at the appropriate
place insert—

4 The amendments made by this Schedule have effect in relation to accounting
periods ending on or after 5 December 2013.

Section 65

SCHEDULE 12 45Supplementary charge: onshore allowance

Part 1 Amendments of Part 8 of CTA 2010

1 Part 8 of CTA 2010 (oil activities) is amended as follows.

Onshore allowance

2 Section 357 is renumbered as section 356AA.

3 After Chapter 7 insert—

“ CHAPTER 8 Supplementary charge: onshore allowance

5Introduction

356B Overview

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
10includes 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
15different 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”

(1) 20In 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) 25Activities 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
30(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

(1) 35Activities 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) 40are 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),

5but 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) 10are 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) 15In 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) 20does 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
25concerned.

(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”

30In 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
35extraction sites are used in connection with it).

Onshore allowance

356C Generation of onshore allowance

(1) Subsection (2) applies where a company incurs any relievable capital
expenditure in relation to a qualifying site.

(2) 40 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,
45and 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
5356CA).

(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
10generated—

(a) “by” the company concerned,

(b) “at” the site concerned.

(a)(a)“by” the company concerned,

(b) “at” the site concerned.

(8) 15Where 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) 20In 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 section 351;

(b) in the case of a drilling and extraction site, are to be read in
accordance with section 356J.

356CA 25 Disqualifying conditions for section 356C(4)(b)

(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) 30For 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.

356CB Expenditure not related to an established site

(1) A company may make an election under this section in relation to
35capital 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) 40An 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) 45a 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) 5Where 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.

10Reduction of adjusted ring fence profits

356D Reduction of adjusted ring fence profits

(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) 15In 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
  20company 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 25 Carrying forward of activated allowance

(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) 30the adjusted ring fence profits.

(2) The difference is carried forward to the next accounting period.

356DB Companies with both field allowances and onshore allowance

(1) This section applies where a company’s adjusted ring fence profits
for an accounting period are reducible both—

(a) 35under section 333(1) (by the amount of the company’s pool of
field allowances for the period), and

(b) under section 356D(1) (by the cumulative total amount of
activated allowance for the period).

(2) The company may choose the order in which the different
40allowances are to be used.

(3) If the company chooses to apply section 333(1) first, then—

(a) Chapter 7 and this Chapter are to be ignored in calculating
the “adjusted ring fence profits” in accordance with section
356AA, and

(b) if section 356D(1) is also applied: this Chapter, but not
Chapter 7, is to be ignored in calculating the adjusted ring
fence profits in accordance with section 356JB.

(4) If the company chooses to apply section 356D(1) first, then—

(a) 5this Chapter and Chapter 7 are to be ignored in calculating
the adjusted ring fence profits in accordance with section
356JB, and

(b) if section 333(1) is also applied: Chapter 7, but not this
Chapter, is to be ignored in calculating the “adjusted ring
10fence profits” in accordance with section 356AA.

Activated and unactivated allowance: basic calculation rules

356E Activation of allowance: no change of equity share

(1) This section applies where—

(a) a company is a licensee in a licensed area for the whole or part
15(“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) 20the 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) 25The 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
30from 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
35fence profits for the accounting period.

356EA The closing balance of unactivated allowance for an accounting
period

The closing balance of unactivated allowance held by a company for
an accounting period and a site is—

40

P + Q +  − R

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
  45generated by the company in that accounting period at that
  site);

Finance (No. 2) BillPage 408

• 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;

• 5R is any amount deducted in accordance with section
  356GD(1) (reduction of allowance if equity disposed of).

356EB Carrying forward of unactivated allowance

(1) This section applies where X is greater than Y in the case of an
accounting period of a company and a site, where—

• 10X 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
15onshore 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

356F Transfer of allowances between sites

(1) 20This 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) 25The 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) 30the 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
35particular accounting period if the amount does not exceed—

A +  − T

where—

• A is the amount of onshore allowance generated in that
  accounting period for that site;

• 40T 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;

Finance (No. 2) BillPage 409

(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) 5if 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)
10is 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.

15Changes in equity share: activation of allowance

356G Introduction to sections 356GA to 356GD

(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) 20the 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) 25In 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

(1) 30For 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) 35A 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
40share 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

(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
45following—