|
Clause 287: Restriction on credits to be brought into account
984. This clause ensures that exchange gains in respect of loan relationships are not treated as part of the ring fence profits where the exchange gains do not arise from money borrowed to finance ring fence activities. It is based on section 494(2), (2ZA) and (2A) of ICTA.
985. The clause operates in a similar way to clause 286. Where a credit is excluded from the computation of ring fence profits it is brought into account by subsection (5).
Clause 288: Sale and lease-back
986. This clause ensures that where financing has been obtained by way of a sale and lease-back of assets, a deduction for the expenditure may not be made against ring fence profits unless certain conditions are met. It is based on section 494AA of ICTA.
987. Subsections (6) and (7) ensure that a deduction is only permitted against ring fence profits if the disposal proceeds are used in the ring fence trade.
988. Where the deduction is prevented from being given in full or in part against the ring fence profits, subsection (8) allows a deduction from other profits of the company for any amount that has not been allowed because of this clause.
989. This clause has no income tax equivalent.
Clause 289: Reduction of expenditure by reference to regional development grant
990. This clause restricts a deduction for expenditure incurred to the extent that the expenditure has been met by a regional development grant. It is based on section 495(1), (2) and (7) of ICTA.
991. The corresponding rule for income tax is section 225K of ITTOIA (inserted by Schedule 1 to TIOPB).
992. The main restriction in respect of a grant is applied by section 534 of CAA. This clause applies essentially the same restriction to the purchaser of an asset who buys the asset from a connected party, and where that connected party received a regional development grant on the original acquisition or construction of the asset.
993. The source legislation applies to expenditure taken into account under Parts 2, 3 or 6 of CAA. Section 84 of FA 2008 repeals Part 3 of CAA for corporation tax purposes with respect to expenditure incurred on or after 1 April 2011. The clause therefore applies to Parts 2 and 6 of CAA and the reference to Part 3 of CAA has been retained for the interim period by way of a transitional provision in Schedule 2.
Clause 290: Adjustment as a result of regional development grant
994. This clause supplements clause 289 and section 534 of CAA where the amount of expenditure involved is re-determined at a later date. It is based on section 495(3) to (7) of ICTA.
995. The corresponding rule for income tax is section 225L of ITTOIA (inserted by Schedule 1 to TIOPB).
996. The most likely application of regional development grants in the oil context is for onshore assets such as initial treatment plants to stabilise the crude oil arriving by pipeline. The eligibility of such assets for PRT relief, or the proportion that is eligible, can take some time to agree. As a result, the PRT position (which determines the amount eligible for capital allowances) may not be finalised for some time.
997. Accordingly, capital allowances could be given on the full amount in the “initial period”, disregarding the grant, as section 534(2) of CAA or its predecessors would not have applied at that stage. Subsection (5) ensures that the position can be adjusted in a later period if a change in circumstances occurs.
998. Section 137 of FA 1982, referred to in the source legislation, was rewritten in section 534 of CAA.
999. The source legislation applies to expenditure taken into account under Parts 2, 3 or 6 of CAA. Section 84 of FA 2008 repeals Part 3 of CAA for corporation tax purposes with respect to expenditure incurred on or after 1 April 2011. The clause therefore applies to Parts 2 and 6 of CAA and the reference to Part 3 of CAA has been retained for the interim period by way of a transitional provision in Schedule 2.
Clause 291: Tariff receipts etc
1000. This clause brings certain tariff receipts into the calculation of ring fence profits if those receipts would not otherwise be included. It is based on section 496 of ICTA.
1001. The corresponding rule for income tax is section 225M of ITTOIA (inserted by Schedule 1 to TIOPB).
1002. Tariff receipts arise where assets used in the ring fence trade are not used wholly for oil extraction by the owner but are used by other businesses in return for payment of a fee or “tariff”. Typical examples include the use of pipelines and treatment plants.
1003. Tax-exempt tariffing receipts arise where the oil field to which the assets are attached for PRT purposes is not within the charge to PRT and therefore the tariffs are not chargeable to PRT.
1004. Definitions of “tariff receipt” and “tax-exempt tariffing receipt” have been included to aid users of the legislation.
Clause 292: Expenditure on and under abandonment guarantees
1005. This clause provides relief against corporation tax where an oil field participator incurs expenditure in obtaining an abandonment guarantee. It is based on sections 62 and 63(8) of FA 1991.
1006. The corresponding rule for income tax is section 225N of ITTOIA (inserted by Schedule 1 to TIOPB).
1007. The cost of decommissioning oil fields is eligible for relief under the capital allowances code. But as the majority of oil fields are shared between two or more participators there is a risk that one or more of the participators may not meet their share of the cost when the time comes. As a result participators have taken out guarantees with financial institutions to cover their share. This clause provides relief for the cost of obtaining the guarantee.
Clause 293: Relief for reimbursement expenditure under abandonment guarantees
1008. This clause provides relief for a participator against ring fence profits where some or all of a participator’s share of decommissioning costs is met by a guarantee and the participator subsequently reimburses the guarantor. It is based on section 63 of FA 1991.
1009. The corresponding rule for income tax is section 225O of ITTOIA (inserted by Schedule 1 to TIOPB).
Clause 294: Payment under abandonment guarantee not immediately applied
1010. This clause applies where a guarantor makes payments into a fund and the assets of the fund are subsequently used to cover decommissioning costs. It is based on section 62(4) of FA 1991.
1011. The corresponding rule for income tax is section 225P of ITTOIA (inserted by Schedule 1 to TIOPB).
1012. In such a case the rules for relief under clause 292 or clause 293 apply to the expenditure when it is eventually met out of the assets of the fund.
Clause 295: Amounts excluded from section 293(1)
1013. This clause restricts relief where amounts are repaid to a guarantor instead of being applied to meet decommissioning costs. It is based on section 63(2) of FA 1991.
1014. The corresponding rule for income tax is section 225Q of ITTOIA (inserted by Schedule 1 to TIOPB).
Clause 296: Introduction to sections 297 and 298
1015. This clause sets out the circumstances in which clauses 297 and 298 apply, and provides some related definitions. It is based on sections 64(1), (2) and (3) and 65(1) of FA 1991.
1016. The corresponding rule for income tax is section 225R of ITTOIA (inserted by Schedule 1 to TIOPB).
Clause 297: Relief for expenditure incurred by a participator in meeting defaulter’s abandonment expenditure
1017. This clause provides for relief to a participator who meets the decommissioning expenditure that should have been met by another participator (the “defaulter”). It is based on section 64(4) and (5) of FA 1991.
1018. The corresponding rule for income tax is section 225S of ITTOIA (inserted by Schedule 1 to TIOPB).
Clause 298: Reimbursement by defaulter in respect of certain abandonment expenditure
1019. This clause applies where a defaulting participator reimburses another participator who has met the defaulter’s liability for decommissioning expenditure. It is based on section 65 of FA 1991.
1020. The corresponding rule for income tax is section 225T of ITTOIA (inserted by Schedule 1 to TIOPB).
1021. Relief against ring fence profits is given to the defaulter, and the other participator is treated as receiving additional ring fence income.
1022. The time limit in subsection (5) was amended from six years to four years by paragraph 27 of Schedule 39 to FA 2008. This change takes effect by Order from 1 April 2010 (see article 2(2) of the Finance Act 2008, Schedule 39 (Appointed Day, Transitional Provisions and Savings) Order 2009 (SI 2009/403)).
Clause 299: Deduction of PRT in calculating income for corporation tax purposes
1023. This clause provides that a company may deduct PRT paid as an expense in calculating profits from the ring fence trade. It is based on section 500(1), (2), and (3) of ICTA.
1024. Clauses 300 and 301 set out what happens when PRT is repaid and clause 302 deals with interest on PRT repayments.
Clause 300: Effect of repayment of PRT: general rule
1025. This clause provides that when an amount of PRT is repaid the deduction under clause 299 is reduced by the amount repaid. It is based on section 500(4) of ICTA.
1026. Subsection (2) provides that the repayment reduces or extinguishes the deduction for the original period for which the deduction was given, not the period when the repayment was received.
1027. The time limit in subsection (3) was amended from six years to four years by paragraph 23 of Schedule 39 to FA 2008. This change takes effect by Order from 1 April 2010 (see article 2(2) of the Finance Act 2008, Schedule 39 (Appointed Day, Transitional Provisions and Savings) Order 2009 (SI 2009/403)).
Clause 301: Effect of repayment of PRT: special rule
1028. This clause supplements clause 300 in cases where the repayment derives from a carried back loss. It is based on section 500(5) to (10) of ICTA.
1029. In such a case the PRT repayment is treated as received, and hence the reduced deduction for corporation tax is applied, for the period in which the loss arose.
1030. The time limit in subsection (6) was amended from six years to four years by paragraph 23 of Schedule 39 to FA 2008. This change takes effect by Order from 1 April 2010 (see article 2(2) of SI 2009/403).
Clause 302: Interest on repayment of PRT or APRT
1031. This clause provides that interest paid to a participator on a repayment of PRT or advance PRT is disregarded in calculating profits for corporation tax purposes. It is based on section 501 of ICTA and paragraph 10 of Schedule 19 to FA 1982.
Clause 303: Management expenses
1032. This clause prohibits a deduction for expenses of management of an investment business against profits from a ring fence trade. It is based on section 492(3A) of ICTA.
Clause 304: Losses
1033. This clause prevents losses that arise in trades outside the ring fence from being set off against ring fence profits. It is based on section 492(3) and (4) of ICTA.
1034. Where a set-off is prevented in this way, subsection (5) allows the loss to be carried forward and set against future profits from “related activities”, that is activities which, taken together with the ring fence trade, would be regarded as a single trade but for the specific ring fence rule in clause 279.
1035. The equivalent income tax rule, originally in section 492(2) of ICTA, is in section 80 of ITA.
1036. See clause 40 for rules about the extension of the loss carry-back period in a ring fence trade where allowances for abandonment expenditure under section 164 of CAA are involved; and clause 43, which extends the time limit for making a claim where allowances are made under section 165 (general decommissioning expenditure after ceasing ring fence trade) or 416 (site restoration expenditure) of CAA.
Clause 305: Group relief
1037. This clause prevents group relief arising from losses, allowances or expenditure outside the ring fence trade from being set against profits from the ring fence trade. It is based on sections 492(8) and 494A(1), (2) and (3) of ICTA.
1038. Subsections(2) and (3) provide that where a company cannot use certain amounts against its ring fence profits, those ring fence profits are disregarded in calculating how much the company can surrender as group relief.
Clause 306: Capital allowances
1039. This clause ensures that capital allowances arising from “special leasing” cannot be deducted from a company’s ring fence profits. It is based on section 492(6) and (7) of ICTA.
1040. The restriction does not apply to the extent that the leased asset is used in oil extraction activities by an associated company.
1041. Section 492(5) of ICTA is not rewritten as it is considered to be unnecessary. It prohibits the deduction of capital allowances given under section 258 of CAA against general profits. However, the deduction under section 258 of CAA can only be given against income from special leasing and not against other profits. Special leasing is defined in section 19 of CAA as leasing that is not part of any other qualifying activity. It is therefore not necessary to have a rule to protect ring fence income from this type of deduction.
Chapter 5: Ring fence expenditure supplement
Overview
1042. This Chapter rewrites the rules in Schedule 19C to ICTA, which provide a supplement for certain expenditure incurred on or after 1 January 2006. These rules superseded the exploration expenditure supplement in Schedule 19B to ICTA, which applies to expenditure incurred before 1 January 2006. Schedule 19B is therefore of limited future application and is not rewritten. This also means that certain terms used in this Chapter such as “the carried forward qualifying Schedule 19B amount” do not need to be altered.
Clause 307: Overview of Chapter
1043. This clause sets out an overview of the Chapter. It is based on paragraph 1 of Schedule 19C to ICTA.
Clause 308: Qualifying companies
1044. This clause sets out the definition of a qualifying company for the purposes of this Chapter. It is based on paragraph 2 of Schedule 19C to ICTA.
Clause 309: Accounting periods
1045. This clause sets out defined terms for accounting periods that lie either side of, or straddle, 1 January 2006. It is based on paragraph 3 of Schedule 19C to ICTA.
Clause 310: The relevant percentage
1046. This clause sets out the relevant percentage for the supplement and provides a power for the Treasury to vary the percentage by order. It is based on paragraph 4 of Schedule 19C to ICTA.
Clause 311: Limit on number of accounting periods for which supplement may be claimed
1047. This clause limits to six the number of accounting periods for which supplement may be claimed. It is based on paragraph 5 of Schedule 19C to ICTA.
1048. Subsection (3) directs that a claim for an accounting period under Schedule 19B to ICTA counts as part of the overall total of six accounting periods.
Clause 312: Qualifying pre-commencement expenditure
1049. This clause defines “qualifying pre-commencement expenditure” for the purposes of the Chapter. It is based on paragraph 6 of Schedule 19C to ICTA.
Clause 313: Unrelieved group ring fence profits for accounting periods
1050. This clause defines the term “unrelieved group ring fence profits” for an accounting period. It is based on paragraph 7 of Schedule 19C to ICTA.
1051. The broad scheme of the supplement is to increase the amount of certain expenditure and losses that cannot be relieved immediately to reflect the time value of the delay in obtaining effective tax relief. But where there are unrelieved profits from a ring fence trade elsewhere in the same group, some or all of the losses could have been used against those other ring fence profits in the same accounting period. Where this is the case supplement is restricted by clause 318 or clause 328 as appropriate. The pool of expenditure eligible for supplement in a given period is reduced by the amount of any unrelieved group ring fence profits.
1052. This term applies for both pre-commencement and post-commencement supplement.
Clause 314: Taxable ring fence profits for an accounting period
1053. This clause defines the term “taxable ring fence profits” for the purposes of the Chapter. It is based on paragraph 8 of Schedule 19C to ICTA.
1054. This term is used in clause 313 to determine the amount of unrelieved group ring fence profits.
Clause 315: Supplement in respect of a pre-commencement accounting period
1055. This clause sets out when a company may qualify for pre-commencement supplement, and how the supplement is given effect. It is based on paragraph 9 of Schedule 19C to ICTA.
1056. Supplement is given as a percentage of the “reference amount”, which is defined in clause 319. “Pre-commencement period” is defined in clause 309.
Clause 316: The mixed pool of qualifying pre-commencement expenditure and supplement previously allowed
1057. This clause sets out how the pool of expenditure that qualifies for pre-commencement supplement is determined. It is based on paragraph 10 of Schedule 19C to ICTA.
1058. The pool can include amounts carried forward from the exploration expenditure supplement in Schedule 19B to ICTA.
Clause 317: Reduction in respect of disposal receipts under CAA 2001
1059. This clause restricts the amount of expenditure eligible for supplement where there is a relevant disposal receipt taken into account under CAA. It is based on paragraph 11 of Schedule 19C to ICTA.
Clause 318: Reduction in respect of unrelieved group ring fence profits
1060. This clause restricts the amount eligible for supplement where some or all of the expenditure could have been surrendered as group relief. It is based on paragraph 12 of Schedule 19C to ICTA.
1061. The term “unrelieved group ring fence profits” is defined in clause 313.
Clause 319: The reference amount for a pre-commencement period
1062. This clause defines the “reference amount” for the purposes of clause 315. It is based on paragraph 13 of Schedule 19C to ICTA.
1063. The reference amount is the amount on which supplement can be claimed, that is the eligible expenditure reduced under either or both of clauses 317 and 318 as appropriate.
Clause 320: Claims for pre-commencement supplement
1064. This clause sets out how a claim for pre-commencement supplement must be made and applies the time limit in paragraph 74 of Schedule 18 to FA 1998 to the claim. It is based on paragraph 14 of Schedule 19C to ICTA.
Clause 321: Supplement in respect of a post-commencement period
1065. This clause sets out when a company may qualify for post-commencement supplement, and how the claim is given effect. It is based on paragraph 15, 17 and 18 of Schedule 19C to ICTA.
1066. The calculation of post-commencement supplement is set out in clauses 322 to 329. Under subsection (2) the supplement is treated as a loss carried forward to be set against future profits from the ring fence trade.
Clause 322: Amount of post-commencement supplement for a post-commencement period.
1067. This clause sets out how to calculate the amount of the post-commencement supplement. It is based on paragraph 16 of Schedule 19C to ICTA.
1068. The supplement is a percentage of the “reference amount”. The percentage is specified in clause 310 and “reference amount” for post-commencement supplement is defined in clause 329.
Clause 323: Ring fence losses
1069. This clause sets out how much of a trading loss from the ring fence trade is eligible for inclusion in the calculation of post-commencement supplement. It is based on paragraph 17 of Schedule 19C to ICTA.
1070. Subsection (3) provides that losses are not eligible for supplement if they could have been claimed against profits from an earlier accounting period.
Clause 324: Special rule for straddling periods
1071. This clause sets out the rules that apply where a company’s accounting period straddles 1 January 2006. It is based on paragraph 18 of Schedule 19C to ICTA.
Clause 325: The pool of ring fence losses and the pool of non-qualifying Schedule 19B losses
1072. This clause sets out how to determine the company’s pool of expenditure (the “ring fence pool”) for the purposes of post-commencement supplement. It is based on paragraph 19 of Schedule 19C to ICTA.
1073. The ring fence pool includes qualifying amounts carried forward from the pool determined under Schedule 19B to ICTA. The clause also defines a non-qualifying pool which contains non-qualifying amounts carried forward under Schedule 19B to ICTA.
Clause 326: The ring fence pool
1074. This clause sets out how and when additions to and reductions of the ring fence pool are made. It is based on paragraph 20 of Schedule 19C to ICTA.
Clause 327: Reductions in respect of utilised ring fence losses
1075. This clause sets out how reductions in the two pools are to be made when a ring fence loss is utilised against profits. It is based on paragraph 21 of Schedule 19C to ICTA.
1076. The general rule is that when losses carried forward are set against profits in a later period, the non-qualifying pool is reduced first and the ring fence pool is then reduced by any balance of the loss after the non-qualifying pool has been reduced to nil.
Clause 328: Reductions in respect of unrelieved group ring fence profits
1077. This clause sets out how the expenditure eligible for supplement is to be reduced where there is an amount of unrelieved group ring fence profits. It is based on paragraph 22 of Schedule 19C to ICTA.
1078. The term “unrelieved group ring fence profits” is defined in clause 313.
| 
