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

(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) 5The 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
  10of 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

(1) 15If, 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) 20If 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 25 Unactivated amounts attributable to a reference period

(1) For the purposes of section 356GB(1)(b), the total amount of
unactivated allowance attributable to a reference period and a site
is—

30where—

• 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);

• 35Q 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) 40Where 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

356H 5 Introduction to sections 356HA and 356HB

(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) 10immediately 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

(1) 15The 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—

• 20F 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;

• 25E2 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—

30where P and Q are the same as in section 356GD.

356HB Acquisition of allowance if equity acquired

(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
35allowance of the amount given by subsection (2).

(2) The amount is—

where—

• R is the amount determined for the purposes of the deduction
  40under section 356HA(1);

• E3 is the share of equity in the licensed area that the
  transferee has acquired from the transferor;

Finance (No. 2) BillPage 412

• E1 and E2 are the same as in section 356HA.

Miscellaneous

356I Adjustments

(1) This section applies if there is any alteration in a company’s adjusted
5ring 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
10to the calculation of the amount to be carried forward under section
356DA).

356IA Orders

(1) The Treasury may by order substitute a different percentage for the
percentage that is at any time specified in section 356C(2)
15(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
20provision.

Interpretation

356J “Authorisation of development”: drilling and extraction sites

(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
25site 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
30licensed 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) 35In 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
  40from the licensed area otherwise than in the course of
  searching for oil or drilling wells;

• “national authority” means—

  (a)

  the Secretary of State, or

  Finance (No. 2) BillPage 413

  (b)

  a Northern Ireland Department.

356JA When capital expenditure is incurred

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 5 Other definitions

In this Chapter (except where otherwise specified)—

• “adjusted ring fence profits”, in relation to a company and an
  accounting period, means the adjusted ring fence profits that
  would (if this Chapter were ignored) be taken into account in
  10calculating the supplementary charge on the company under
  section 330(1) for the accounting period (but see also section
  356DB);

• “cumulative total amount of activated allowance” has the
  meaning given by section 356D(2);

• 15“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);

• 20“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.”

Restriction of field allowance to offshore fields

4 (1) Section 352 (meaning of “qualifying oil field”) is amended as follows.

(2) 25Renumber section 352 as subsection (1) of section 352.

(3) In section 352(1) (as renumbered), after “an oil field” insert “, other than an
onshore field,”.

(4) After subsection (1) insert—

“(2) An oil field is an “onshore field” for the purposes of subsection (1)
30if—

(a) the authorisation day is on or after 5 December 2013, and

(b) on the authorisation day every part of the oil field is, or is part
of, an onshore licensed area;

but see the transitional provisions in paragraph 7 of Schedule 12 to
35FA 2014.

(3) A licensed area is an “onshore licensed area” if it falls within the
definition of “landward area” in the regulations pursuant to which
the application for the licence was made.”

Part 2 40Minor and consequential amendments

5 (1) CTA 2010 is amended as follows.

(2) In section 270 (overview of Part)—

(a) after subsection (7) insert—

“(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
5activities.”;

(b) in subsection (8)(c), for “357” substitute “356AA”.

(3) In section 333 (reduction of adjusted ring fence profits)—

(a) in subsection (1), after “reduced” insert “(but not below zero)”;

(b) omit subsection (2).

(4) 10In section 356AA (as renumbered by paragraph 2)(definitions for Chapter 7),
in the definition of “adjusted ring fence profits”, at the end insert “; but see
also section 356DB (companies with allowances under Chapter 8 as well as
this Chapter)”.

(5) In Schedule 4 (index of defined expressions)—

(a) 15at the appropriate places insert—

(b) in the entries for “adjusted ring fence profits”, “authorisation day”,
“eligible oil field”, “licensee” and “relevant income” (in each case, as
those expressions are defined for Chapter 7 of Part 8 of CTA 2010),
35for “357” substitute “356AA”.

Part 3 Commencement and transitional provision

Commencement of onshore allowance

6 (1) The amendments made by paragraphs 3 and 5(1), (2)(a), (3) and (4) have
40effect in relation to capital expenditure incurred on or after 5 December 2013.

(2) The amendments made by paragraph 4 have effect in relation to any
accounting period of a company in which a post-commencement
authorisation day falls.

(3) In sub-paragraph (2) “post-commencement authorisation day” means an
45authorisation day (as defined for Chapter 7 of Part 8 of CTA 2010) that is 5
December 2013 or a later day.

(4) Section 5 of CAA 2001 (when capital expenditure is incurred) applies for the
purposes of this paragraph as for the purposes of that Act.

Option to defer commencement

7 (1) This paragraph applies in relation to any oil field whose development (in
5whole or in part) is authorised for the first time on or after 5 December 2013
but before 1 January 2015.

(2) At any time before 1 January 2015, the companies that are licensees in the oil
field may jointly elect that the law is to have effect in relation to each of those
companies as if the date specified in—

(a) 10section 352(2)(a) of CTA 2010 (as inserted by paragraph 4(4) of this
Schedule),

(b) section 356C(3) of CTA 2010 (as inserted by paragraph 3 of this
Schedule), and

(c) paragraph 6(3),

15were 1 January 2015.

(3) Expressions used in this paragraph and in Chapter 7 of Part 8 of CTA 2010
have the same meaning in this paragraph as in that Chapter.

Straddling accounting periods

8 (1) Paragraphs 9 and 10 apply where a company has an accounting period (the
20“straddling accounting period”) that begins before and ends on or after
commencement day.

(2) In paragraphs 9 and 10 “commencement day” means—

(a) 5 December 2013 (except where paragraph (b) applies);

(b) 1 January 2015, in relation to a company that makes an election under
25paragraph 7.

(3) Expressions used in paragraph 9 or 10 and in Chapter 8 of Part 8 of CTA 2010
(as inserted by paragraph 3) have the same meaning in the paragraph
concerned as in that Chapter.

9 (1) The amount (if any) by which the company’s adjusted ring fence profits for
30the straddling accounting period are reduced under section 356D of CTA
2010 (as inserted by paragraph 3) cannot exceed the appropriate proportion
of those profits.

(2) Section 356DA of CTA 2010 (carrying forward of activated allowance)
applies in relation to the company and the accounting period as if the
35reference in subsection (1)(b) of that section to the adjusted ring fence profits
were to the appropriate proportion of those profits.

(3) The “appropriate proportion” of the company’s adjusted ring fence profits
for the s

40traddling accounting period is—

where—

• D is the number of days in the straddling accounting period that fall on
  or after commencement day;

• Y is the number of days in the straddling accounting period;

Finance (No. 2) BillPage 416

• N is the amount of the company’s adjusted ring fence profits for the
  accounting period.

(4) If the basis of apportionment in sub-paragraph (3) would work unjustly or
unreasonably in the company’s case, the company may elect for its adjusted
5ring fence profits to be apportioned on another basis that is just and
reasonable and specified in the election.

10 (1) For the purpose of determining the amount of activated allowance the
company has with respect to any site—

(a) for the straddling accounting period (see section 356E of CTA 2010,
10as inserted by paragraph 3), or

(b) for a reference period that is part of the straddling accounting period
(see section 356GB of CTA 2010, as so inserted),

the company’s relevant income from the site in the straddling accounting
period is taken to be the appropriate proportion of the actual amount of that
15relevant income.

(2) Accordingly, in relation to the company, the straddling accounting period
and the site in question, section 356EB of CTA 2010 (carrying forward of
unactivated allowance) has effect as if Y in subsection (1) of that section were
defined as the appropriate proportion of the company’s relevant income for
20the straddling accounting period from that site.

(3) The “appropriate proportion” of the company’s relevant income from a site
in the straddling accounting period

is—

25where—

• D is the number of days in the straddling accounting period that fall on
  or after commencement day;

• Y is the number of days in the straddling accounting period;

• I is the amount of the company’s relevant income from the site in the
  30straddling accounting period.

(4) If the basis of apportionment in sub-paragraph (3) would work unjustly or
unreasonably in the company’s case, the company may elect for its adjusted
ring fence profits to be apportioned on another basis that is just and
reasonable and specified in the election.

Section 68

35SCHEDULE 13 Partnerships

Part 1 Limited liability partnerships: treatment of salaried members

Main provision

1 40In Part 9 of ITTOIA 2005 (partnerships) after section 863 (limited liability

partnerships) insert—

“863A Limited liability partnerships: salaried members

(1) Subsection (2) applies at any time when conditions A to C in sections
863B to 863D are met in the case of an individual (“M”) who is a
member of a limited liability partnership in relation to which section
5863(1) applies.

(2) For the purposes of the Income Tax Acts—

(a) M is to be treated as being employed by the limited liability
partnership under a contract of service instead of being a
member of the partnership, and

(b) 10accordingly, M’s rights and duties as a member of the limited
liability partnership are to be treated as rights and duties
under that contract of service.

(3) This section needs to be read with section 863G (anti-avoidance).

863B Condition A

(1) 15The question of whether condition A is met is to be determined at the
following times—

(a) if relevant arrangements are in place—

(i) at the beginning of the tax year 2014-15, or

(ii) if later, when M becomes a member of the limited
20liability partnership,

at the time mentioned in sub-paragraph (i) or (ii) (as the case
may be);

(b) at any subsequent time when relevant arrangements are put
in place or modified;

(c) 25where—

(i) the question has previously been determined, and

(ii) the relevant arrangements which were in place at the
time of the previous determination do not end, and
are not modified, by the end of the period which was
30the relevant period for the purposes of the previous
determination (see step 1 in subsection (3)),

immediately after the end of that period.

(2) “Relevant arrangements” means arrangements under which
amounts are to be, or may be, payable by the limited liability
35partnership in respect of M’s performance of services for the
partnership in M’s capacity as a member of the partnership.

(3) Take the following steps to determine whether condition A is met at
a time (“the relevant time”).

Step 1

40Identify the relevant period by reference to the relevant
arrangements which are in place at the relevant time.

“The relevant period” means the period—

• beginning with the relevant time, and

• ending at the time when, as at the relevant time, it is
  45reasonable to expect that the relevant arrangements will end
  or be modified.

Step 2

Condition A is met if, at the relevant time, it is reasonable to expect
that at least 80% of the total amount payable by the limited liability
partnership in respect of M’s performance during the relevant
5period of services for the partnership in M’s capacity as a member of
the partnership will be disguised salary.

An amount within the total amount is “disguised salary” if it—

• is fixed,

• is variable, but is varied without reference to the overall
  10amount of the profits or losses of the limited liability
  partnership, or

• is not, in practice, affected by the overall amount of those
  profits or losses.

(4) If condition A is determined to be met, or not to be met, at a time, the
15condition is to be treated as met, or as not met, at all subsequent
times until the question is required to be re-determined under
subsection (1)(b) or (c).

(5) In this section “arrangements” includes any agreement,
understanding, scheme, transaction or series of transactions
20(whether or not legally enforceable).

863C Condition B

Condition B is that the mutual rights and duties of the members of
the limited liability partnership, and of the partnership and its
members, do not give M significant influence over the affairs of the
25partnership.

863D Condition C

(1) Condition C is that, at the time at which it is being determined
whether the condition is met (“the relevant time”), M’s contribution
to the limited liability partnership (see sections 863E and 863F) is less
30than 25% of the amount given by subsection (2) (subject to subsection
(7)).

(2) That amount is the total amount of the disguised salary which, at the
relevant time, it is reasonable to expect will be payable by the limited
liability partnership in respect of M’s performance during the
35relevant tax year of services for the partnership in M’s capacity as a
member of the partnership.

In this section “the relevant tax year” means the tax year in which the
relevant time falls and an amount is “disguised salary” if it falls
within any of paragraphs (a) to (c) at step 2 in section 863B(3).

40In this section “the relevant tax year” means the tax year in which the
relevant time falls and an amount is “disguised salary” if it falls
within any of paragraphs (a) to (c) at step 2 in section 863B(3).

(3) The question of whether condition C is met is to be determined—

(a) at the beginning of the tax year 2014-15 or, if later, the time at
45which M becomes a member of the limited liability
partnership;

(b) after that, at the beginning of each tax year.

(4) If in a tax year—

(a) there is a change in M’s contribution to the limited liability
50partnership, or

(b) there is otherwise a change of circumstances which might
affect the question of whether condition C is met,

the question of whether the condition is met is to be re-determined at
the time of the change.

5This subsection is subject to section 863F(3).

This subsection is subject to section 863F(3).

(5) If condition C is determined to be met (including by virtue of
subsection (7)), or not to be met, at the relevant time, the condition is
to be treated as met, or as not met, at all subsequent times until the
10question is required to be re-determined under subsection (3)(b) or
(4).

(6) Subsection (7) applies if—

(a) the relevant time coincides with an increase in M’s
contribution to the limited liability partnership, and

(b) 15apart from subsection (7), that increase would cause
condition C not to be met at the relevant time.

(7) Condition C is to be treated as met at the relevant time unless, at that
time, it is reasonable to expect that condition C will not be met for the
remainder of the relevant tax year (ignoring this subsection).

(8) 20If there are any excluded days in the relevant tax year (see
subsections (9) to (11)), in subsection (1) the reference to M’s
contribution to the limited liability partnership is to be read as a
reference to that contribution multiplied by the following fraction—

25where—

• D is the number of days in the relevant tax year, and

• E is the number of excluded days in the relevant tax year.

(9) Any day in the relevant tax year—

(a) which is before the day on which the relevant time falls, and

(b) 30on which M is not a member of the limited liability
partnership,

is an “excluded” day for the purposes of subsection (8).

(10) If, at the relevant time, it is reasonable to expect that M will not be a
member of the limited liability partnership for the remainder of the
35relevant tax year, any day in the relevant tax year—

(a) which is after the day on which the relevant time falls, and

(b) on which it is reasonable to expect that M will not be a
member of the limited liability partnership,

is an “excluded” day for the purposes of subsection (8).

(11) 40If the relevant time coincides with an increase in M’s contribution to
the limited liability partnership, any day in the relevant tax year—

(a) which is before the day on which the relevant time falls, and

(b) on which condition C is met,

is an “excluded” day for the purposes of subsection (8).

(12) 45In subsections (6) and (11) references to an increase in M’s
contribution to the limited liability partnership include (in
particular)—