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Finance (No. 2) BillPage 270

Investment allowance

2 After Chapter 6 insert—

CHAPTER 6A Supplementary charge: investment allowance
Introduction
332A 5 Overview

(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) 10the 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
15(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
20to 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
25332G);

(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
30Chapter, see paragraphs 7 and 8 of Schedule 12 to FA 2015.

“Qualifying oil field” and “investment expenditure”
332B Meaning of “qualifying oil field”

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 35  Meaning of “investment expenditure”

(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
40by the Treasury by regulations.

Finance (No. 2) BillPage 271

(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
5revoking 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.

10Investment allowance
332C Generation of investment allowance

(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
15April 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
20a 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) 25section 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
30previously 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) 35Investment 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) 40Where—

(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
45to a particular qualifying oil field,

Finance (No. 2) BillPage 272

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

(1) This section applies to expenditure incurred by a company on or
5after 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
10not 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) 15Where 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
20OTA 1975 to be an oil field.

Restrictions on relievable expenditure
332D   Expenditure on acquisition of asset: disqualifying conditions

(1) Investment expenditure incurred by a company (“the acquiring
company”) on the acquisition of an asset is not relievable
25expenditure 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 acquisition, by the acquiring company or another
company, in acquiring, bringing into existence or enhancing the
30value 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) 35is 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 acquisition, by the
acquiring company or another company, in acquiring,
40bringing 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
45Chapter had been fully in force and had applied to
expenditure incurred at that time.

Finance (No. 2) BillPage 273

(4) For the purposes of subsection (3)(a)(ii) it does not matter whether
the asset is acquired at the time of the transfer.

332DA   Restriction where field qualified for field allowance as new field

(1) This section applies to expenditure which—

(a) 5is 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) 10is 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
15section 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
20relevant 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,
25when 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
30during 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) 35The “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;

  • 40E 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 Secretary of State as that on which
the relevant project was materially completed.

(6) 45“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

Finance (No. 2) BillPage 274

(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) 5at 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
10receipts (as defined by section 6A(2) of that Act).

(8) This section does not apply to expenditure to which section 332DB
applies.

332DB   Restriction where project in additionally-developed field qualified
for field allowance

(1) 15This 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) 20would 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).

25In 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) 30if 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
35amount 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
40amount 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) 45The “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
    50project, 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.

Finance (No. 2) BillPage 275

(5) This section does not apply to expenditure which is incurred on or
after the day determined by the Secretary of State as that on which
the project was materially completed.

(6) This section does not apply to expenditure incurred by a company
5if—

(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
1015(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.

332DC 15 Restriction relating to fields qualifying for onshore allowance

(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) 20on 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) 25In this section “onshore oil-related activities” has the same meaning
as in Chapter 8 (see section 356BA).

Reduction of adjusted ring fence profits
332E Reduction of adjusted ring fence profits

(1) A company’s adjusted ring fence profits for an accounting period are
30to 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—


A + C

35where—

  • 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

  • Finance (No. 2) BillPage 276

  • C is any amount carried forward to the period under section
    332EA.

332EA Carrying forward of activated allowance

(1) This section applies where, in the case of a company and an
5accounting 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
332F 10 Activation of allowance: no change of equity share

(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
15(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
20field 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) 25the 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).

(3) 30In this Chapter “relevant income”, in relation to a qualifying oil field
and an accounting period of a company, means 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.

332FA 35 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 qualifying oil field is—


P + Q

40where—

  • 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
    45period);

  • Finance (No. 2) BillPage 277

  • 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 5  Activation limit for former additionally-developed fields

(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
107 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
15for 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) 20Condition 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) 25The “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) 30Condition 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

(1) If, in the case of an accounting period of a company and a qualifying
35oil 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—


40

U − A − T

where—

  • U is the closing balance of unactivated allowance held for the
    accounting period and the qualifying oil field (see section
    332FA);

  • 45A is the amount of activated allowance that the company has
    for the accounting period and the qualifying oil field (see
    section 332F(2));

  • Finance (No. 2) BillPage 278

  • 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) 5If 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.

10Changes in equity share: reference periods
332G Reference periods

(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) 15the 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) 20a 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
25including 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
30concerned.

Changes in equity share: activation of allowance
332H Activation of allowance: reference periods

(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
35following—

(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) 40in 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

Finance (No. 2) BillPage 279

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
5the 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
10allowance attributable to the project in question.

332HA Unactivated amounts attributable to a reference period

(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—


15

P + Q

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
    20in 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
25forward 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 30 Carry-forward of unactivated allowance from a reference period

(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 that qualifying oil
field for the next period (and is treated as held with effect from the
35beginning of that period).

(2) The amount is—


U − A − T

where—

  • U is the total amount of unactivated allowance attributable to
    40the reference period and the 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)
    45(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.

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