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Finance (No. 2) BillPage 280

(3) If RP1 is immediately followed by another reference period of the
company (belonging to the same qualifying oil field), “the next
period” means that reference period.

(4) If subsection (3) does not apply, “the next period” means the next
5accounting period of the company.

Transfers of allowance on disposal of equity share
332I Introduction to sections 332IA and 332IB

(1) Sections 332IA and 332IB apply where—

(a) a company (“the transferor”) disposes of the whole or part of
10its share of the equity in a qualifying oil field, and

(b) one or more of the following conditions is met.

(2) The “unactivated allowance condition” is that immediately before
the disposal the transferor holds unactivated investment allowance
for the oil field.

(3) 15The “section 332DA expenditure condition” is that—

(a) immediately before the disposal the company has for the
purposes of section 332DA (restriction where field qualified
for field allowance as new field) a cumulative total of relevant
expenditure attributable to its share of the equity in the oil
20field, and

(b) the date of the disposal falls before any date determined
under section 332DA(5) (material completion).

(4) The “section 332DB expenditure condition” is that—

(a) immediately before the disposal the company has for the
25purposes of section 332DB (restriction where project in
additionally-developed field qualified for field allowance) a
cumulative total of relevant expenditure attributable to its
share of project-related reserves in relation to the oil field,
and

(b) 30the date of the disposal falls before any date determined
under section 332DB(5) (material completion).

(5) In sections 332IA and 332IB

(a) each of the companies to which a share of the equity is
disposed of is referred to as “a transferee”, and

(b) 35references to conditions are to be read in accordance with this
section.

332IA   Reduction of allowance if equity is disposed of

(1) If the unactivated allowance condition is met, the following amount
is to be deducted in calculating the total amount of unactivated
40investment allowance attributable to the qualifying oil field
concerned that is to be carried forward under section 332FC or
332HB from an accounting period or reference period of the
transferor—


45where—

  • U and A are—

    • in the case of a disposal made on the day following
      the end of an accounting period, the same as in
      section 332FC(2) (in its application to that period), or

    • 50in the case of a disposal made on the day following
      the end of a reference period, the same as in section
      332HB(2) (in its application to that period);

  • E1 is the transferor’s share of the equity in the qualifying oil
    field immediately before the disposal;

  • 55E2 is the transferor’s share of the equity in the qualifying oil
    field immediately after the disposal.

Finance (No. 2) BillPage 281

(2) Subsection (3) applies if the section 332DA expenditure condition is
met.

(3) As from the beginning of the accounting period or reference period
that begins with the day on which the disposal is made, the following
5amount is to be deducted in calculating for the purposes of section
332DA the cumulative total of relevant expenditure attributable to
the transferor’s share of the equity in the oil field—


where—

  • 10X is the cumulative total of relevant expenditure attributable
    to the transferor’s share of the equity in the oil field (for the
    purposes of section 332DA), determined immediately before
    the disposal;

  • E1 and E2 have the same meaning as in subsection (1).

(4) 15Subsection (5) applies if the section 332DB expenditure condition is
met.

(5) As from the beginning of the accounting period or reference period
that begins with the day on which the disposal is made, the following
amount is to be deducted in calculating for the purposes of section
20332DB the cumulative total of relevant expenditure attributable to
the transferor’s share of project-related reserves—


where—

  • X is the cumulative total of relevant expenditure attributable
    25to the transferor’s share of project-related reserves (for the
    purposes of section 332DB), determined immediately before
    the disposal;

  • E1 is the transferor’s share, immediately before the disposal,
    of the additional reserves of oil that the oil field has as a result
    30of the project;

  • E2 is the transferor’s share, immediately after the disposal, of
    the additional reserves of oil that the oil field has as a result
    of the project.

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332IB   Acquisition of allowance if equity acquired

(1) If the unactivated allowance condition is met, a transferee is treated
as generating in the qualifying oil field concerned, at the beginning
of the reference period or accounting period of the transferee that
5begins with the day on which the disposal is made, investment
allowance of the amount given by subsection (2).

(2) The amount is—


where—

  • 10R is the amount determined for the purposes of the deduction
    under section 332IA(1);

  • E3 is the share of the equity in the qualifying oil field that the
    transferee has acquired from the transferor;

  • E1 and E2 are the same as in section 332IA(1).

(3) 15Subsection (4) applies if the section 332DA expenditure condition is
met.

(4) A transferee is treated for the purposes of section 332DA(3) as having
incurred in respect of the qualifying oil field, at the beginning of the
reference period or accounting period of the transferee that begins
20with the day on which the disposal is made, expenditure of the
following amount—


where—

  • R is the amount determined for the purposes of the deduction
    25under section 332IA(3);

  • E1, E2 and E3 have the same meaning as in subsection (2).

(5) Subsection (6) applies if the section 332DB expenditure condition is
met.

(6) A transferee is treated for the purposes of section 332DB(3) as having
30incurred in respect of the project, at the beginning of the reference
period or accounting period of the transferee that begins with the
day on which the disposal is made, expenditure of the following
amount—


35where—

  • R is the amount determined for the purposes of the deduction
    under section 332IA(5);

  • E3 is the share of the project-related reserves that the
    transferee has acquired from the transferor;

  • 40E1 and E2 have the same meaning as in section 332IA(5).

(7) In subsection (6) “project-related reserves” means the additional
reserves of oil that the oil field has as a result of the project.

Finance (No. 2) BillPage 283

Miscellaneous
332J 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
5effect 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 332E on the profits or
to the calculation of the amount to be carried forward under section
10332EA).

332JA   Regulations amending specified percentages

(1) The Treasury may by regulations substitute a different percentage
for the percentage that is at any time specified in any of the following
provisions—

(a) 15section 332C(2) (calculation of allowance as a percentage of
investment expenditure);

(b) section 332DA(4) (calculation of relevant field threshold in
relation to former new field);

(c) section 332DB(4) (calculation of relevant project threshold in
20relation to former additionally-developed field).

(2) Regulations under subsection (1) may include transitional provision.

Interpretation
332K When expenditure is incurred

(1) Section 5 of CAA 2001 (when capital expenditure is incurred) applies
25for the purposes of this Chapter as for the purposes of that Act.

(2) Regulations under section 332BA(1)(b) may make provision about
when any expenditure that is investment expenditure as a result of
the regulations is to be treated for the purposes of this Chapter as
incurred.

(3) 30This section is subject to section 332CA(3).

332KA Other definitions

In this Chapter (except where otherwise specified)—

3 Chapter 7 (reduction of supplementary charge for eligible oil fields) is
5omitted.

Part 2 Commencement and transitional provision

Interpretation

4 In this Part of this Schedule, the following expressions have the same
10meaning as in Chapter 7 of Part 8 of CTA 2010—

15General rules for commencement

5 The amendment made by paragraph 2 has effect in relation to accounting
periods ending on or after 1 April 2015.

6 (1) The amendment made by paragraph 3 has effect—

(a) in relation to projects authorised as mentioned in section 349A(1)(a)
20of CTA 2010 on or after 1 April 2015 in additionally-developed oil
fields,

(b) in relation to new oil fields whose authorisation day is on or after 1
January 2016, and

(c) in the case of—

(i) 25projects authorised as mentioned in section 349A(1)(a) of
CTA 2010 before 1 April 2015 in additionally-developed oil
fields, or

(ii) new oil fields whose authorisation day is before 1 January
2016,

30in relation to accounting periods ending on or after 1 April 2015.

(2) But sub-paragraph (1)(c) is subject to paragraphs 7 and 8 (which relate to
field allowance under Chapter 7 of Part 8 of CTA 2010).

Unactivated field allowance to become unactivated investment allowance

7 (1) This paragraph applies if, in the absence of this Schedule, a company would
35hold a field allowance for an eligible oil field as a result of section 337 or
347(2) of CTA 2010 immediately before the relevant date.

(2) “The relevant date” is—

(a) in relation to a new oil field whose authorisation day is on or before
1 April 2015, 1 April 2015;

(b) 40in relation to an additionally-developed oil field, 1 April 2015;

(c) in relation to a new oil field whose authorisation day is after 1 April
2015 but before 1 January 2016, the authorisation day.

Finance (No. 2) BillPage 285

(3) The unactivated amount of field allowance held by the company for the oil
field immediately before the relevant date, as determined under section 339
of CTA 2010, is to be treated for the purposes of Chapter 6A of Part 8 of CTA
2010 (inserted by paragraph 2) as an amount of unactivated investment
5allowance generated by the company in the oil field in the relevant period.

(4) “The relevant period” is—

(a) the accounting period in which the relevant date falls, or

(b) where the company has different shares of the equity in the oil field
on different days in that accounting period, the reference period
10(within the meaning of Chapter 6A of Part 8 of CTA 2010) in which
the relevant date falls.

Activated field allowance to become activated investment allowance

8 (1) This paragraph applies if, in the absence of this Schedule, a company would
under section 335 or 336 of CTA 2010 carry all or part of a pool of field
15allowances into the accounting period in which 1 April 2015 falls (“the
commencement period”).

(2) The amount that would be carried into that accounting period is to be
treated for the purposes of Chapter 6A of Part 8 of CTA 2010 (inserted by
paragraph 2) as an amount of activated investment allowance carried
20forward to the commencement period under section 332EA of that Act.

Section 50

SCHEDULE 13 Supplementary charge: cluster area allowance

Part 1 Amendments of Part 8 of CTA 2010

1 25Part 8 of CTA 2010 (oil activities) is amended in accordance with paragraphs
2 to 4.

Cluster area allowance

2 After Chapter 8 insert—

CHAPTER 9 Supplementary charge: cluster area allowance
30Introduction
356JC Overview

(1) This Chapter sets out how relief for certain expenditure incurred in
relation to a cluster area is given by way of reduction of a company’s
adjusted ring fence profits.

(2) 35The Chapter includes provision about—

Finance (No. 2) BillPage 286

(a) the determination of cluster areas (sections 356JD and
356JDA);

(b) the meaning of investment expenditure (section 356JE);

(c) the generation of allowance by the incurring of relievable
5investment expenditure in relation to a cluster area (section
356JF);

(d) how allowance is activated by relevant income from the same
cluster area (sections 356JH to 356JHB and 356JJ to 356JJB) in
order to be available for reducing adjusted ring fence profits
10(sections 356JG and 356JGA);

(e) the division of an accounting period into reference periods
where a company has different shares of the equity in a
licensed area or sub-area at different times in the period
(section 356JI);

(f) 15the transfer of allowance where shares of the equity in a
licensed area or sub-area are disposed of (sections 356JK to
356JKB);

(g) elections to treat allowance attributable to an unlicensed part
of a cluster area as if it were attributable to a licensed area or
20sub-area in the cluster area (section 356JL).

Determination of cluster areas
356JD Meaning of “cluster area”

(1) In this Part “cluster area” means an offshore area which the Secretary
of State determines to be a cluster area.

(2) 25A cluster area is treated as not including any previously authorised
oil field (or any part of such an oil field) (see section 356JDA).

(3) An area is “offshore” for the purposes of this section if the whole of
it lies on the seaward side of the baselines from which the territorial
sea of the United Kingdom is measured.

(4) 30Before determining an area to be a cluster area the Secretary of State
must—

(a) give written notice of the proposed determination to every
person who is a licensee in respect of a licensed area or sub-
area which is wholly or partly included in the proposed
35cluster area and to any other licensee whose interests appear
to the Secretary of State to be affected, and

(b) publish a notice of the proposed determination on a website
that is, and indicates that it is, kept by or on behalf of the
Secretary of State.

(5) 40The Secretary of State must consider any representations made in
writing and within 30 days of the date of the publication of the notice
under subsection (4)(b) (or, in the case of representations made by a
person to whom notice is given under subsection (4)(a), within 30
days of receipt of the notice, if later).

(6) 45A determination under this section—

(a) has effect from the day on which it is published,

Finance (No. 2) BillPage 287

(b) may be in any form the Secretary of State thinks appropriate,
and

(c) must assign to the cluster area an identifying number or other
designation.

(7) 5After making a determination the Secretary of State must—

(a) give written notice of the determination to every person who
is a licensee in respect of a licensed area or sub-area which is
wholly or partly included in the cluster area and any other
person to whom notice of the proposed determination was
10given;

(b) publish a notice of the determination on a website that is, and
indicates that it is, kept by or on behalf of the Secretary of
State.

(8) The Secretary of State may vary or revoke a determination made
15under this section, and subsections (4), (5), (6)(a) and (b) and (7) are
to apply as if the variation or revocation were a new determination.

356JDA Meaning of “previously authorised oil field”

(1) In section 356JD “previously authorised oil field”, in relation to a
cluster area, means an oil field, other than a decommissioned oil
20field, whose development (in whole or in part) was authorised for
the first time before the relevant day.

(2) An oil field is a “decommissioned oil field” in relation to a cluster
area if, immediately before the relevant day, all assets of the oil field
which are relevant assets have been decommissioned.

(3) 25In this section, “relevant day”, in relation to an oil field and a cluster
area, means the date of publication of the first determination, or
variation of a determination, under section 356JD as a result of which
the oil field is (ignoring section 356JD(2)) wholly or partly included
in the cluster area.

(4) 30Sub-paragraphs (2) to (9) of paragraph 7 of Schedule 1 to OTA 1975
apply for the purpose of determining whether relevant assets of an
oil field are decommissioned as they apply for the purpose of
determining whether qualifying assets of a relevant area are
decommissioned.

(5) 35For the purposes of this section, an asset is a relevant asset of an oil
field if—

(a) it has at any time been a qualifying asset (within the meaning
of the Oil Taxation Act 1983) in relation to any participator in
the field, and

(b) 40it has at any time been used for the purpose of winning oil
from the field.

(6) In this section references to authorisation of development of an oil
field are to be interpreted in accordance with section 356IB.

(7) See also paragraph 5 of Schedule 13 to FA 2015, as a result of which
45certain proposed determinations made before the day on which that
Act is passed are treated as made under section 356JD for the
purposes of this Chapter.

Finance (No. 2) BillPage 288

Meaning of “investment expenditure”
356JE   Meaning of “investment expenditure”

(1) For the purposes of this Chapter, expenditure incurred by a
company is “investment” expenditure only if it is—

(a) 5capital expenditure, or

(b) expenditure of such other description as may be prescribed
by the Treasury by regulations.

(2) Regulations under subsection (1)(b) may provide for any of the
provisions of the regulations to have effect in relation to expenditure
10incurred before the regulations are made.

(3) But subsection (2) does not apply to any provision of amending or
revoking regulations which has the effect that expenditure of any
description ceases to be investment expenditure.

(4) Regulations under subsection (1)(b) may—

(a) 15make different provision for different purposes;

(b) make transitional provision and savings.

Cluster area allowance
356JF Generation of cluster area allowance

(1) Subsection (2) applies where a company—

(a) 20is a licensee in a licensed area or sub-area which is wholly or
partly included in a cluster area, and

(b) incurs any relievable investment expenditure on or after 3
December 2014 in relation to the cluster area.

(2) The company is to hold an amount of allowance equal to 62.5% of the
25amount of the expenditure.

Allowance held under this Chapter is called “cluster area
allowance”.

(3) For the purposes of this section investment expenditure incurred by
a company is “relievable” only if, and so far as, it is incurred for the
30purposes of oil-related activities (see section 274).

(4) Subsections (1) to (3) are subject to section 356JFA (which prevents
expenditure on the acquisition of an asset from being relievable in
certain circumstances).

(5) Cluster area allowance is said in this Chapter to be “generated” at the
35time when the investment expenditure is incurred (see section
356JN) and is referred to as being generated—

(a) “by” the company concerned;

(b) “in” the cluster area concerned.

(6) Where—

(a) 40investment 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
to a particular cluster area,

Finance (No. 2) BillPage 289

the expenditure is to be attributed to the activities or area concerned
on a just and reasonable basis.

356JFA   Expenditure on acquisition of asset: disqualifying conditions

(1) Investment expenditure incurred by a company (“the acquiring
5company”) on the acquisition of an asset is not relievable
expenditure for the purposes of section 356JF 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
10company, in acquiring, bringing into existence or enhancing the
value of the asset was relievable under section 356JF.

(3) The second disqualifying condition is that—

(a) the asset—

(i) is the whole or part of the equity in a licensed area or
15sub-area, or

(ii) is acquired in connection with a transfer to the
acquiring company of the whole or part of the equity
in a licensed area or sub-area,

(b) expenditure was incurred, at any time before the acquisition,
20by the acquiring company or another company, in acquiring,
bringing into existence or enhancing the value of the asset,
and

(c) any of that expenditure—

(i) related to the cluster area, and

(ii) 25would have been relievable under section 356JF if this
Chapter had applied to expenditure incurred at that
time.

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

30Reduction of adjusted ring fence profits
356JG 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) 35In relation to a company and an accounting period, the “cumulative
total amount of activated allowance” is—


A + C

where—

  • A is the total of any amounts of activated allowance the
    40company has, for any cluster areas, for the accounting period
    (see section 356JH(2)) or for reference periods within the
    accounting period (see section 356JJ(1)), and

  • C is any amount carried forward to the period under section
    356JGA.

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