Finance (No.2) Bill

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Part 5 — Oil
124

(b)
is not normally disposed of crude by deliveries in quantities of
25,000 metric tonnes or less.
(5D)
Regulations under subsection (5B)—
(a)
may apply generally or only to specified cases or circumstances,
(b)
may make different provision for different cases or
5
circumstances,
(c)
may make incidental, consequential, or transitional provision,
(d)
shall be made by statutory instrument, and
(e)
may not be made unless a draft has been laid before and
approved by resolution of the House of Commons.”
10
(3)
Regulations under section 2(5B) of OTA 1975 (inserted by subsection (2) above)
may have effect for the purpose of calculating profits in relation to a chargeable
period ending at any time on or after 1st July 2006.
Nomination scheme
150
Oil: nomination scheme
15
(1)
Section 61 of FA 1987 (oil taxation: nominations) shall be amended as follows.
(2)
In subsection (1) omit “, supplies and appropriations”.
(3)
For subsections (3) and (4) substitute—
“(3)
If the market value of a relevant delivery ascertained in accordance
with Schedule 3 to the principal Act exceeds a participator’s delivery
20
proceeds of a relevant delivery (within the meaning given by Schedule
10), the excess shall be brought into account by him in accordance with
section 2(5)(e) of the principal Act.
(4)
If a relevant delivery is a delivery of blended oil within the meaning of
section 63, regulations under section 2(5B) of the principal Act shall
25
apply for the purposes of determining the proportion of the excess
attributable to a field.
(4A)
For each month in which a participator makes a relevant delivery, his
monthly excess is the sum of his excesses (if any) calculated in
accordance with subsection (3).
30
(4B)
For each chargeable period of an oil field “the excess of nominated
proceeds for the period” means, in relation to a participator in the oil
field, that proportion of the sum of his monthly excesses for the
chargeable period (if any) which is attributable to the field.”
(4)
Subsections (6) and (7) shall cease to have effect.
35
(5)
In subsection (8) for “9th February 1987” substitute “1st July 2006”.
(6)
In subsection (9) after “shall” insert “(unless otherwise expressly provided)”.
(7)
This section shall have effect in relation to chargeable periods ending on or
after 1st July 2006.

Finance (No.2) Bill
Part 5 — Oil
125

151
Oil: amendment of Schedule 10 to FA 1987
(1)
Schedule 10 to FA 1987 (oil taxation: nominations) shall be amended as follows.
(2)
In paragraph 1 —
(a)
in sub-paragraph (1)—
(i)
omit “, “proposed supply” and “proposed appropriation””,
5
(ii)
for “paragraph 3 below” substitute “paragraph 12A below”, and
(iii)
for “paragraphs (a) to (c)” substitute “paragraph (a)”, and
(b)
omit sub-paragraph (2).
(3)
In paragraph 2 omit—
(a)
sub-paragraph (1)(b), (c) and (d), and
10
(b)
the words following sub-paragraph (1)(d).
(4)
Omit paragraph 3.
(5)
In paragraph 4—
(a)
for sub-paragraph (1) substitute—
    “(1)
If a nomination is made during business hours it shall be
15
effective only if—
(a)
it is made within the period of two hours beginning
with the transaction base time, and
(b)
it satisfies the requirements of paragraph 5.
     (1A)
If a nomination is made outside business hours it shall be
20
effective only if—
(a)
it is made within the period of two hours beginning
with the transaction base time, and
(b)
it satisfies the requirements of paragraph 5 or 5A.
     (1B)
For the purposes of this paragraph—
25
(a)
the transaction base time of a proposed transaction is
such time on such date as the Board shall prescribe by
regulations, and
(b)
“business hours” means the period beginning with
09.00 and ending with 17.00 (UK time) on a business
30
day (within the meaning of the Bills of Exchange Act
1882 (c. 61)).”,
(b)
omit sub-paragraphs (2) and (2A),
(c)
in sub-paragraph (3)—
(i)
for “transaction base date” substitute “transaction base time”,
35
and
(ii)
for “date” in each place substitute “time”, and
(d)
omit sub-paragraph (4).
(6)
In paragraph 5 of that Schedule—
(a)
in sub-paragraph (1) for “A nomination of a proposed transaction shall
40
not be effective unless it specifies, in respect to that transaction”
substitute “The requirements of this paragraph for a nomination in
respect of a proposed transaction are”,
(b)
in sub-paragraph (1)(b) omit “in the case of a proposed sale”,
(c)
in sub-paragraph (1)(c) and (d) omit “or relevantly appropriated”,
45

Finance (No.2) Bill
Part 5 — Oil
126

(d)
in sub-paragraph (1)(d) for “supplied” substitute “delivered”,
(e)
for sub-paragraph (1)(g) substitute—
“(g)
the transaction base time; and”,
(f)
in sub-paragraph (2) after “A nomination” insert “made under this
paragraph”, and
5
(g)
in sub-paragraph (3) after “a nomination” insert “made under this
paragraph”.
(7)
After paragraph 5 of that Schedule insert—
“5A   (1)
The requirements of this paragraph for a nomination in respect of a
proposed transaction are—
10
(a)
the name of the participator or of the group of which the
participator is a member;
(b)
the name of the person to whom the oil is to be sold, or the
name of the group of which that person is a member;
(c)
the blend or grade of oil to be delivered;
15
(d)
the nominated price of the oil to be delivered;
(e)
the nominal volume of the oil;
(f)
the proposed delivery month;
(g)
the transaction base time; and
(h)
such other information as may be prescribed by the Board.
20
      (2)
In sub-paragraph (1) “group” has the meaning given by section 53 of
the Companies Act 1989.
5B    (1)
A nomination of a transaction shall not be effective unless oil is
delivered pursuant to a contract at arm’s length the terms of which
incorporate the information specified in the nomination in
25
accordance with paragraph 5(1) or 5A(1).
      (2)
But—
(a)
a contract need not refer to the transaction base time, and
(b)
the nomination shall be effective whether or not delivery
takes place in the proposed delivery month specified in the
30
nomination and the contract.”
(8)
Omit paragraph 6(2) and (3).
(9)
Omit paragraph 7(2) and (5).
(10)
After paragraph 7(5) insert—
    “(6)
The Board may by regulations prescribe that in specified
35
circumstances the nominal volume in relation to a delivery shall be
treated as greater or less than the nominal volume ascertained in
accordance with the preceding provisions of this paragraph.
      (7)
Regulations under sub-paragraph (6)—
(a)
shall be made by statutory instrument, and
40
(b)
may not be made unless a draft has been laid before and
approved by resolution of the House of Commons.”
(11)
Omit paragraphs 8 to 11.
(12)
In paragraph 12(1) of that Schedule omit “, supply or appropriation”.

Finance (No.2) Bill
Part 5 — Oil
127

(13)
After paragraph 12 insert—
“Interpretation
12A
For the purposes of section 61 and this Schedule—
(a)
a reference to the proposed delivery month in relation to a
proposed transaction is a reference to the month in which
5
delivery is to take place,
(b)
“relevant delivery” means a delivery of oil under a contract
made at arm’s length in respect of which there has been no
effective nomination, and
(c)
“delivery proceeds” means the price received for a relevant
10
delivery.”
(14)
This section shall have effect in relation to a transaction whenever proposed,
but shall not have effect in relation to a proposed transaction with a transaction
base date (within the meaning given by regulations under paragraph 4 of
Schedule 10 to FA 1987) on or before 30th June 2006.
15
(15)
Regulations under paragraph 4(1B) of Schedule 10 to FA 1987 (inserted by
subsection (5) above) may have retrospective effect.
152
Oil: nomination excesses and corporation tax
(1)
After section 493(1) of ICTA (valuation of oil disposed of or appropriated)
insert—
20
“(1A)
Where an excess of nominated proceeds in a chargeable period (within
the meaning given by section 61 of the Finance Act 1987) is taken into
account in computing a person’s profits under section 2(5)(e) of the
1975 Act (or would be taken into account if the person were chargeable
to tax under that Act in respect of a field), for the purposes of subsection
25
(1) the amount of the excess shall be added to the consideration which
the person is deemed to have received in respect of oil disposed of by
him in the period.”
(2)
This section shall have effect in relation to deliveries of oil made on or after 1st
July 2006.
30
Ring fence trades
153
Increase in rate of supplementary charge
(1)
In section 501A of ICTA (supplementary charge in respect of ring fence trades),
in subsection (1) (charge of 10 per cent on adjusted ring fence profits), for “10
per cent” substitute “20 per cent”.
35
(2)
The amendment made by subsection (1) has effect in relation to any accounting
period beginning on or after 1st January 2006 (but see also subsection (3)).
(3)
For the purpose of calculating the amount of the supplementary charge on a
company for an accounting period (a “straddling period”) beginning before 1st
January 2006 and ending on or after that date—
40
(a)
so much of the straddling period as falls before 1st January 2006, and so
much of the straddling period as falls on or after that date, are treated
as separate accounting periods, and

Finance (No.2) Bill
Part 5 — Oil
128

(b)
the company’s adjusted ring fence profits for the straddling period are
apportioned to the two separate accounting periods in proportion to
the number of days in those periods.
(4)
The amount of the supplementary charge on the company for the straddling
period is the sum of the amounts of supplementary charge that would, in
5
accordance with subsection (3), be chargeable on the company for those
separate accounting periods.
(5)
In the case of a company’s straddling period—
(a)
the Instalment Payments Regulations apply as if the amendment made
by subsection (1) had not been made, but
10
(b)
those Regulations also apply separately, in accordance with the
following subsection, in relation to the increase in the amount of any
supplementary charge on the company for that period that arises as a
result of that amendment.
(6)
In that separate application of those Regulations as mentioned in subsection
15
(5)(b), those Regulations have effect as if, for the purposes of those
Regulations,—
(a)
the straddling period were an accounting period beginning on 1st
January 2006,
(b)
supplementary charge were chargeable on the company for that
20
period, and
(c)
the amount of that charge were equal to the increase in the amount of
the supplementary charge for the straddling period that arises as a
result of the amendment made by subsection (1).
(7)
Any reference in the Instalment Payments Regulations to the total liability of a
25
company is, accordingly, to be read—
(a)
in their application as a result of subsection (5)(a), as a reference to the
amount that would be the company’s total liability for the straddling
period if the amendment made by subsection (1) had not been made,
and
30
(b)
in their application as a result of subsection (5)(b), as a reference to the
amount of the supplementary charge on the company for the deemed
accounting period under subsection (6)(a).
(8)
For the purposes of the Instalment Payments Regulations—
(a)
a company is to be regarded as a large company as respects the deemed
35
accounting period under subsection (6)(a) if (and only if) it is a large
company for those purposes as respects the straddling period, and
(b)
any question whether a company is a large company as respects the
straddling period is to be determined as it would have been determined
if the amendment made by subsection (1) had not been made.
40
(9)
If the Instalment Payments Regulations—
(a)
apply in relation to a company’s liability to supplementary charge for
the deemed accounting period under subsection (6)(a), and
(b)
would (but for this subsection) treat any instalment payment in respect
of that liability as being due and payable on a date falling on or before
45
22nd March 2006,

those Regulations have effect as if the payment were due and payable instead
at the end of the period of 14 days beginning with that date.

Finance (No.2) Bill
Part 5 — Oil
129

(10)
In this section—
“adjusted ring fence profits” has the meaning given by section 501A of
ICTA,
“the Instalment Payments Regulations” means the Corporation Tax
(Instalment Payments) Regulations 1998 (S.I. 1998/ 3175),
5
“supplementary charge” means any sum chargeable under section
501A(1) of ICTA as if it were an amount of corporation tax.
154
Election to defer capital allowances
(1)
This section applies if—
(a)
a company carries on a ring fence trade in an accounting period
10
beginning on or after 1st January 2006,
(b)
relevant expenditure is incurred for the purposes of or in relation to the
ring fence trade (see subsections (4) to (7)), and
(c)
the relevant expenditure would (but for this section) be treated as
incurred for the purposes of CAA 2001 in the period of 12 months
15
ending with 31st December 2005.
(2)
The company may elect for the relevant expenditure to be treated instead as if
it were incurred on the first day of the company’s first accounting period
beginning on or after 1st January 2006.
(3)
The election—
20
(a)
has effect for the purposes of CAA 2001 other than those of section 45G
(expenditure not first-year qualifying expenditure under section 45F if
plant or machinery used for less than 5 years in a ring fence trade), and
(b)
must be made by notice given to an officer of Revenue and Customs on
or before 31st December 2007.
25
(4)
Expenditure is relevant expenditure if it falls within any of Cases A to C.
(5)
Expenditure falls within Case A if—
(a)
it is first-year qualifying expenditure on the provision of plant or
machinery under section 45F of CAA 2001 (expenditure on plant and
machinery for use wholly in a ring fence trade), and
30
(b)
no disposal event (see subsection (8)) in relation to the plant or
machinery occurs in the relevant period.
(6)
Expenditure falls within Case B if—
(a)
it is first-year qualifying expenditure under section 416B of CAA 2001
(mineral extraction allowances: expenditure incurred by a company for
35
purposes of a ring fence trade),
(b)
no disposal event in relation to any asset representing the expenditure
occurs in the relevant period,
(c)
it is expenditure (or so far as it is expenditure) to which no part of any
capital sum received by the company in the relevant period is
40
reasonably attributable under section 425(2) of CAA 2001, and
(d)
no entitlement to a balancing allowance for a chargeable period in
respect of the expenditure arises under any of sections 426 to 431 of
CAA 2001 as a result of an event that occurs in the relevant period (as
well as in that chargeable period).
45

The reference in paragraph (b) to any asset representing the expenditure is to
be read in accordance with section 416B(4) of CAA 2001.

Finance (No.2) Bill
Part 5 — Oil
130

(7)
Expenditure falls within Case C if—
(a)
it is qualifying expenditure on research and development under Part 6
of CAA 2001 where the ring fence trade is the trade by reference to
which the expenditure is qualifying expenditure, and
(b)
no disposal event in relation to any asset representing the expenditure
5
occurs in the relevant period.
(8)
In this section—
“disposal event”—
(a)
in relation to first-year qualifying expenditure under section
45F of CAA 2001, means an event of a kind that requires a
10
disposal value to be brought into account under Part 2 of that
Act (whether under section 61(1) or otherwise),
(b)
in relation to first-year qualifying expenditure under section
416B of CAA 2001, means an event of a kind that requires a
disposal value to be brought into account under section 421 or
15
422 of that Act,
(c)
in relation to qualifying expenditure on research and
development under Part 6 of CAA 2001, means an event of a
kind that requires a disposal value to be brought into account
under section 443(1) of that Act,
20
“the relevant period”, in relation to any expenditure for the purposes of or
in relation to a company’s ring fence trade, means the period—
(a)
beginning with the day on which the expenditure would (but
for this section) be treated as incurred for the purposes of CAA
2001, and
25
(b)
ending with the first day of the company’s first accounting
period beginning on or after 1st January 2006,
“ring fence trade” means a ring fence trade in respect of which tax is
chargeable under section 501A of ICTA (supplementary charge in
respect of ring fence trades).
30
155
Ring fence expenditure supplement
(1)
Chapter 5 of Part 12 of ICTA (petroleum extraction activities) is amended as
follows.
(2)
After section 496A (exploration expenditure supplement) insert—
“496B
  Ring fence expenditure supplement
35

Schedule 19C to this Act (ring fence expenditure supplement) shall
have effect.”.
(3)
Schedule 19B (petroleum extraction activities: exploration expenditure
supplement) is amended as follows.
(4)
In paragraph 1 (about the Schedule)—
40
(a)
in sub-paragraph (1) (entitlement of company to supplement), in the
opening words, after “2004” insert “but before 1st January 2006”,
(b)
in sub-paragraph (2) (condition that expenditure incurred on or after
1st January 2004), after “2004” insert “but before 1st January 2006”.
(5)
In paragraph 3 (accounting periods)—
45