Finance Bill (HC Bill 1)

Section 65

SCHEDULE 12 Supplementary charge: onshore allowance

Part 1 Amendments of Part 8 of CTA 2010

1 5Part 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

10Introduction

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
15includes 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
20different 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) 25In 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) 30Activities 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
35(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) 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
5extracted 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) 10authorise 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
15rights 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
20reasonably 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
25relevant 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;

30and 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
35if the references in it to an oil field were to a site.

356BC “Site”

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
40with 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

356C Generation of onshore allowance

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

(2) 5 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,
10and 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
15356CA).

(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
20generated—

(a) “by” the company concerned,

(b) “at” the site concerned.

(a)(a)“by” the company concerned,

(b) “at” the site concerned.

(8) 25Where 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) 30In 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 35 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) 40For 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
capital expenditure incurred by it for the purposes of onshore oil-
related activities if the appropriate condition is met.

(2) 5The 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
10expenditure 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) 15an 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
20an 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

356D 25 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) In relation to a company and an accounting period, the “cumulative
30total amount of activated allowance” is—

356DA Carrying forward of activated allowance

(1) 40This 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.

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) 5under 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
10allowances 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) 15if 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) this Chapter and Chapter 7 are to be ignored in calculating
20the 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
fence profits” in accordance with section 356AA.

25Activated 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
(“the licensed part”) of an accounting period,

(b) 30the 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
35closing 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
40accounting 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
5fence 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—

10

356EB Carrying forward of unactivated allowance

(1) This section applies where X is greater than Y in the case of an
25accounting 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) 30An 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

356F 35 Transfer of allowances between sites

(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) 40by 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
45company 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
5amount of onshore allowance held by it for a site as generated in a
particular accounting period if the amount does not exceed—

(5) An election must specify—

(a) 15the 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) 20if 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)
25is 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.

30Changes 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) 35the 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) 40In 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) 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
5company 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
10licensee 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

(1) 15The 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) 20the 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—

356GC Carry-forward of unactivated allowance from a reference period

(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
35difference 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) 40If subsection (2) does not apply, “the next period” means the next
accounting period of the company.

356GD 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—

5

(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
20356EB(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 25 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) 30immediately 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) 35The 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—

(2) The “pre-transfer total of unactivated allowance” for a reference
period is—

5

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
10transferee that begins with, or because of, the disposal, onshore
allowance of the amount given by subsection (2).

(2) The amount is—

20Miscellaneous

356I Adjustments

(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) 25Any 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 30 Orders

(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
35specified 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.