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Finance (No. 2) Bill (HC Bill 193)

Finance (No. 2) BillPage 290

356JGA Carrying forward of activated allowance

(1) This section applies where, in the case of a company and an
accounting period, the cumulative total amount of activated
allowance (see section 356JG(2)) is greater than the adjusted ring
5fence profits.

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

Activated and unactivated allowance: basic calculation rules
356JH Activation of allowance: no change of equity share

(1) This section applies where—

(a) 10for the whole or part of an accounting period, a company is a
licensee in a licensed area or sub-area which is wholly or
partly included in a cluster area,

(b) the accounting period is not divided into reference periods
(see section 356JI),

(c) 15the company holds, for the accounting period and the cluster
area, a closing balance of unactivated allowance (see section
356JHA) which is greater than zero, and

(d) the company has relevant income from the cluster area for
the accounting period.

(2) 20The amount of activated allowance the company has for that
accounting period and that cluster area is the smaller of—

(a) the closing balance of unactivated allowance held for the
accounting period and the cluster area;

(b) the company’s relevant income for that accounting period
25from that cluster area.

(3) In this Chapter “relevant income”, in relation to a cluster area and an
accounting period of a company, means production income of the
company from any oil extraction activities carried on in that area that
is taken into account in calculating the company’s adjusted ring
30fence profits for the accounting period.

356JHA 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 cluster area is—


35

P + Q

where—

  • P is the amount of cluster area allowance generated by the
    company in the cluster area in the accounting period
    (including any amount treated under section 356JKB(1) as
    40generated by the company in that cluster area in that
    accounting period);

  • Q is any amount carried forward from an immediately
    preceding accounting period under section 356JHB(1) or
    from an immediately preceding reference period under
    45section 356JJB(1).

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356JHB Carrying forward of unactivated allowance

(1) If, in the case of an accounting period of a company and a cluster
area, the amount given by subsection (2) is greater than zero, that
amount is treated as cluster area allowance held by the company for
5that cluster area for the next period (and is treated as held with effect
from the beginning of that period).

(2) The amount is—


U − A − T

where—

  • 10U is the closing balance of unactivated allowance held for the
    accounting period and the cluster area;

  • A is the amount of activated allowance that the company has
    for the accounting period and the cluster area (see section
    356JH(2));

  • 15T is the sum of any amounts transferred by the company
    under section 356JK in connection with a disposal or
    disposals made on the day following the end of the
    accounting period.

(3) If the accounting period is followed by a reference period of the
20company belonging to that cluster area (see section 356JI), “the next
period” means that period.

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

Changes in equity share: reference periods
356JI 25 Reference periods

(1) This section applies where—

(a) a company is a licensee for the whole or part of an accounting
period in one or more licensed areas or sub-areas (“the
relevant areas”) which are wholly or partly included in a
30cluster area, and

(b) in the case of at least one of the relevant areas, the company
has different shares of the equity in the area on different days
in the accounting period.

(2) For the purposes of this Chapter, the accounting period is to be
35divided into as many consecutive periods (called “reference
periods”) as are necessary to secure that—

(a) a reference period begins with the first day of the accounting
period,

(b) a reference period begins with the date of each disposal or
40acquisition of a share of the equity in any of the relevant areas
that is made by the company in that accounting period (not
including 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
45period.

(3) Each such reference period “belongs to” the cluster area concerned.

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Changes in equity share: activation of allowance
356JJ Activation of allowance: reference periods

(1) The amount (if any) of activated allowance that a company has for a
cluster area for a reference period is the smaller of the following—

(a) 5the company’s relevant income from the cluster area for the
reference period;

(b) the total amount of unactivated allowance that is attributable
to the reference period and the cluster area (see section
356JJA).

(2) 10The company’s relevant income from the cluster area for the
reference period is so much of the company’s relevant income from
the cluster area for the accounting period (see section 356JH(3)) as
arises in the reference period.

356JJA Unactivated amounts attributable to a reference period

(1) 15For the purposes of section 356JJ(1)(b), the total amount of
unactivated allowance attributable to a reference period and a
cluster area is—


P + Q

where—

  • 20P is the amount of allowance generated by the company in
    the reference period in the cluster area (including any
    amount treated under section 356JKB(1) as generated by the
    company in that area in that reference period);

  • Q is the amount given by subsection (2) or (3).

(2) 25Where 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
356JHB(1).

(3) 30Where the reference period is immediately preceded by another
reference period, Q is equal to the amount (if any) carried forward
under section 356JJB(1).

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

(1) If, in the case of a reference period (“RP1”) of a company, the amount
35given by subsection (2) is greater than zero, that amount is treated as
cluster area allowance held by the company for the cluster area
concerned for the next period.

(2) The amount is—


U − A − T

40where—

  • U is the total amount of unactivated allowance attributable to
    the reference period and the cluster area (see section 356JJA);

  • A is the amount of activated allowance that the company has
    for the cluster area for the reference period (see section 356JJ);

  • 45T is the sum of any amounts transferred by the company
    under section 356JK in connection with a disposal or

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    disposals made on the day following the end of the reference
    period.

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

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

Transfers of allowance on disposal of equity share
356JK Disposal of equity share: transfer of allowance

(1) Subsections (2) and (3) apply where—

(a) 10a company (“the transferor”) makes a disposal, on the day
following the end of an accounting period or reference
period, of the whole or part of its share of the equity in a
licensed area or sub-area which is wholly or partly included
in a cluster area (“the relevant cluster area”), and

(b) 15the maximum transferable amount is greater than zero.

Each company to which a share of the equity is disposed of is
referred to in this section as a “transferee”.

(2) The transferor may, by an election, transfer to the transferee (or
transferees) a specified amount of cluster area allowance (greater
20than zero) which—

(a) is not less than the minimum transferable amount, and

(b) is not more than the maximum transferable amount.

(3) If the transferor does not make an election under subsection (2), the
minimum transferable amount of cluster area allowance (if greater
25than zero) is transferred to the transferee (or transferees).

(4) An election under subsection (2)

(a) must be made within the 60 days beginning with the date of
the disposal,

(b) must—

(i) 30specify the date of the disposal and the amount of
cluster area allowance transferred, and

(ii) identify the transferees, and

(c) is irrevocable.

(5) The minimum transferable amount is—


35

where—

  • G is so much of the total generated allowance for the relevant
    cluster area (see subsection (6)) as is attributable on a just and
    reasonable basis to the licensed area or sub-area mentioned in
    40subsection (1);

  • A is the total of any amounts of allowance which have, in
    relation to any accounting period or reference period of the
    transferor ending before the date of the disposal, been

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    activated under section 356JH or 356JJ in relation to the
    relevant cluster area;

  • E1 is the transferor’s share of the equity in the licensed area
    or sub-area immediately before the disposal;

  • E2 is the transferor’s share of the equity in the licensed area
    5or sub-area immediately after the disposal.

(6) In the definition of “G” in subsection (5), “the total generated
allowance for the relevant cluster area” means the total of—

(a) all amounts of cluster area allowance generated by the
transferor in that cluster area before the date of the disposal,
10and

(b) any amounts treated under section 356JKB(1) as so generated
on the date of the disposal.

(7) The maximum transferable amount is—


15where—

  • M is the smaller of—

    • G (as defined in subsection (5)), and

    • the transferor’s pre-transfer total of unactivated
      allowance for the relevant cluster area;

  • 20E1 and E2 have the same meaning as in subsection (5).

(8) In subsection (7) the transferor’s “pre-transfer total of unactivated
allowance for the relevant cluster area” means—


P + Q − (A + S)

where—

  • 25P and Q are—

    • if the disposal is made on the day following the end of
      an accounting period, the same as in section 356JHA
      (in its application to that period), or

    • if the disposal is made on the day following the end of
      30a reference period, the same as in section 356JJA(1) (in
      its application to that period);

  • A is—

    • if the disposal is made on the day following the end of
      an accounting period, the same as in section
      35356JHB(2) (in its application to that period), or

    • if the disposal is made on the day following the end of
      a reference period, the same as in section 356JJB(2) (in
      its application to that period);

  • S is the total of any amounts of allowance transferred by the
    40transferor in connection with any prior disposals (see section
    356JKA) made in relation to the relevant cluster area on the
    day on which the disposal is made.

(9) For the effect of a transfer of cluster area allowance in relation to the
transferor, see—

(a) 45for disposals made on the day following the end of an
accounting period, section 356JHB (reduction of unactivated
allowance carried forward from accounting period), or

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(b) for disposals made on the day following the end of a
reference period, section 356JJB (reduction of unactivated
allowance carried forward from reference period).

356JKA More than one disposal on a single day

(1) 5Subsections (2) to (4) apply where a company makes, on a single day
and in relation to a single cluster area, more than one disposal falling
within section 356JK(1)(a).

(2) The company may, by an election, choose the order of priority of the
disposals for the purposes of section 356JK(8).

(3) 10A disposal which is placed higher in the order of priority than
another disposal is a “prior disposal” in relation to the other for the
purposes of the definition of “S” in section 356JK(8).

(4) An election under subsection (2) is irrevocable.

356JKB Effect of transfer of allowance for transferee

(1) 15Where a transfer of cluster area allowance is made under section
356JK, each transferee is treated as generating in the cluster area
concerned, at the beginning of the accounting period or reference
period of the transferee that begins with the day on which the
disposal is made, cluster area allowance of the amount given by
20subsection (2).

(2) The amount is—


where—

  • T is the total amount of cluster area allowance transferred in
    25connection with the disposal;

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

  • E1 and E2 are the same as in section 356JK(5).

(3) In this section references to the transferor and the transferees are to
30be read in accordance with section 356JK(1).

Use of allowance attributable to unlicensed area
356JL Use of allowance attributable to unlicensed area

(1) Subsection (2) applies where—

(a) a company (“C”) disposes of the whole or part of its share of
35the equity in a licensed area or sub-area (“area A”),

(b) that area is wholly or partly included in a cluster area, and

(c) C has generated in the cluster area, on or before the day of the
disposal, cluster area allowance which is wholly or partly
attributable to an unlicensed area (“area U”) in the cluster
40area.

(2) C may, by an election, assign to area A, or to any other relevant
licensed area or sub-area in the cluster area, so much of the total of
generated allowance for the cluster area as is attributable to area U.

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(3) The reference in subsection (2) to a “relevant” licensed area or sub-
area is to a licensed area or sub-area in which C is a licensee.

(4) In subsection (2), “the total of generated allowance for the cluster
area” means the total of all amounts of cluster area allowance
5generated by C in the cluster area at any time on or before the day of
the disposal (including any amounts treated under section 356JKB(1)
as so generated).

(5) An election under this section must be made within the 60 days
beginning with the date of the disposal and must specify—

(a) 10the amount of cluster area allowance transferred,

(b) the unlicensed area to which it was attributable, and

(c) the licensed area or sub-area to which it is assigned.

(6) An election under this section is irrevocable.

(7) Where an amount of cluster area allowance is assigned to a licensed
15area or sub-area by an election under this section, that amount is
taken, for the purposes of this Chapter—

(a) to have been attributable to that licensed area or sub-area
with effect from the beginning of the day on which the
disposal is made, and

(b) 20never to have been attributable to area U.

(8) In this section—

  • “attributable” means attributable on a just and reasonable basis;

  • “unlicensed area” means an area which is not (and is not part of)
    a licensed area or sub-area.

25Miscellaneous
356JM 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) 30Any 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 356JG on the profits or
to the calculation of the amount to be carried forward under section
356JGA).

356JMA 35 Regulations amending percentage in section 356JF(2)

(1) The Treasury may by regulations substitute a different percentage
for the percentage that is at any time specified in section 356JF(2)
(calculation of allowance as a percentage of investment expenditure).

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

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Interpretation
356JN When capital expenditure is incurred

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

(2) 5Regulations under section 356JE(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.

356JNA Licensed sub-areas

10Where any person is entitled to a share of equity in a licensed area
which relates to part only of that area—

(a) that part is referred to in this Chapter as a “licensed sub-
area”, and

(b) the share of equity is referred to in this Chapter as a share of
15equity in the licensed sub-area,

and references to a licensee in a licensed sub-area are to be
interpreted accordingly.

356JNB Other definitions

In this Chapter (except where otherwise specified)—

  • 20“adjusted ring fence profits”, in relation to a company and an
    accounting period, is to be read in accordance with section
    330ZA;

  • “cluster area allowance” has the meaning given by section
    356JF(2);

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

  • “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;

  • 30“licensee” has the same meaning as in Part 1 of OTA 1975 (but
    see also section 356JNA);

  • “relevant income”, in relation to a cluster area and an
    accounting period, has the meaning given by section
    356JH(3).

35Restriction of field allowances

3 Section 349A (meaning of “additionally-developed oil field”), so far as it
continues to have effect for certain purposes (in accordance with Part 2 of
Schedule 12 to this Act) in the case of projects authorised before 1 April 2015,
is to be read as if in subsection (1)—

(a) 40the “and” at the end of paragraph (aa) were omitted;

(b) after paragraph (b) there were inserted “, and

(c) on the authorisation day the oil field has never been
(and is not treated by virtue of paragraph 5 of
Schedule 13 to FA 2015 as having been) wholly or
45partly included in a cluster area.

4 Section 350 (meaning of “new oil field”), so far as it continues to have effect

Finance (No. 2) BillPage 298

for certain purposes (in accordance with Part 2 of Schedule 12 to this Act) in
the case of development authorised before 1 January 2016, is to be read as if
after subsection (4) there were inserted—

(5) Any authorisation of development of an oil field is treated as not
5being an authorisation of development for the purposes of
subsection (1)(b) if it is given on a day on which the oil field is (or is
treated by virtue of paragraph 5 of Schedule 13 to FA 2015 as having
been) wholly or partly included in a cluster area.

Part 2 10Transitional provision

Proposed determinations of cluster areas

5 (1) Sub-paragraph (2) applies if the Secretary of State has published, on any day
(“the day of publication”) in the period beginning with 3 December 2014 and
ending with the day before the day on which this Act is passed, a proposal
15to determine a specified offshore area to be a cluster area for the purposes of
Chapter 9 of Part 8 of CTA 2010.

(2) The proposal is treated for the purposes of that Chapter—

(a) as a determination validly made under section 356JD of that Act and
as having had effect from the day of publication, and

(b) 20if the Secretary of State has published (before the end of the period
mentioned in sub-paragraph (1)) an announcement of the
withdrawal of the proposal, as having ceased to have effect on the
date of publication of that announcement.

But this sub-paragraph is subject to paragraph 6.

(3) 25If a proposal published as mentioned in sub-paragraph (1) (and not
withdrawn before the day on which this Act is passed) assigns an
identifying number or other designation to the proposed cluster area, that
number or other designation is treated as having been assigned under
section 356JD(6).

(4) 30An area is “offshore” for the purposes of this paragraph if the whole of it lies
on the seaward side of the baselines from which the territorial sea of the
United Kingdom is measured.

(5) In this paragraph, references to publication are to publication on a website
that is, and indicates that it is, kept by or on behalf of the Secretary of State.

35Option to exclude certain fields from cluster area allowance

6 (1) This paragraph applies where—

(a) a cluster area has been determined under section 356JD of CTA 2010
on a day before the cut-off date, or is treated under paragraph 5 as
having been so determined, and

(b) 40a particular oil field would (in the absence of this paragraph) be
wholly or partly included in the cluster area for the purposes of
Chapter 9 of Part 8 of CTA 2010.

(2) The relevant companies may, within 60 days of the day the determination of
the cluster area is published, jointly elect that Chapters 6A and 9 of Part 8 of

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CTA 2010, and Chapter 7 of that Part so far as it continues to have effect, are
to have effect as if no part of the oil field were included in the cluster area
(and an election made as mentioned in this sub-paragraph is effective
whether made before or after the day on which this Act is passed).

(3) 5An election under sub-paragraph (2) made on or after the day on which this
Act is passed is irrevocable.

(4) In this paragraph “the relevant companies” means the companies which are
licensees in the oil field at the date of the election.

(5) “The cut-off date” means a day to be specified in regulations made by the
10Treasury.

(6) Section 1171(4) of CTA 2010 (regulations etc subject to annulment) does not
apply to regulations under sub-paragraph (5).

(7) In this paragraph expressions which are used in Chapter 9 of Part 8 of CTA
2010 have the same meaning as in that Chapter.

Section 51

15SCHEDULE 14 Investment allowance and cluster area allowance: further amendments

Part 1 Amendments of CTA 2010

1 CTA 2010 is amended as follows.

2 (1) 20Section 270 (overview of Part) is amended as follows.

(2) After subsection (6) insert—

(6A) Chapter 6A makes provision about the reduction of supplementary
charge by an allowance for certain expenditure incurred in relation
to qualifying oil fields for the purposes of oil-related activities.

(3) 25Omit subsection (7).

(4) After subsection (7A) insert—

(7B) Chapter 9 makes provision about the reduction of supplementary
charge by an allowance for certain expenditure incurred in relation
to a cluster area for the purposes of oil-related activities.

(5) 30In subsection (8)—

(a) at the end of paragraph (a) insert “and”, and

(b) omit paragraph (c) and the “and” before it.

3 In section 330 (supplementary charge in respect of ring fence trades), for
subsection (5) substitute—

(5) 35This Chapter is subject to—

(a) Chapter 6A (reduction of supplementary charge: investment
allowance),