Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 8 — Oil activities
Chapter 4 — Calculation of profits
156

Interest on repayment of PRT or APRT
302
Interest on repayment of PRT or APRT
(1)
Subsection (3) applies if any amount of petroleum revenue tax paid by a
participator in an oil field is, under any provision of Part 1 of OTA 1975, repaid
to the participator with interest.
5
(2)
Subsection (3) also applies if interest is paid to a participator under paragraph
10(4) of Schedule 19 to FA 1982 (interest on advance petroleum revenue tax
which becomes repayable).
(3)
The interest paid is to be disregarded in calculating the participator’s income
for corporation tax purposes.
10
Relief
303
Management expenses
No deduction under section 1219 of CTA 2009 (expenses of management of a
company’s investment business) is to be allowed from a company’s ring fence
profits.
15
304
Losses
(1)
Relief in respect of a loss incurred by a company may not be given under
section 37 (relief for trade losses against total profits) against that company’s
ring fence profits except so far as the loss arises from oil extraction activities or
from oil rights.
20
(2)
Subsection (5) applies if conditions A and B are met.
(3)
Condition A is that a company incurs a loss in an accounting period in
activities (“separate activities”) which, for that or any subsequent accounting
period, are treated by section 279 as a separate trade for the purposes of the
charge to corporation tax on income.
25
(4)
Condition B is that any of the company’s trading income in any subsequent
accounting period is derived from activities (“related activities”) which are not
part of the separate activities but which would together with those activities
constitute a single trade, were it not for section 279.
(5)
The loss may be used under section 45 (carry forward of trade loss against
30
subsequent trade profits) to reduce so much of the company’s trading income
in any subsequent accounting period as is derived from the related activities.
(6)
Subsection (5) applies despite anything in section 279.
305
Group relief
(1)
On a claim for group relief made by a claimant company in relation to a
35
surrendering company, group relief may not be allowed against the claimant
company’s ring fence profits except so far as the claim relates to losses incurred
by the surrendering company that arose from oil extraction activities or from
oil rights.

Corporation Tax Bill
Part 8 — Oil activities
Chapter 5 — Ring fence expenditure supplement
157

(2)
In section 105 (restriction on surrender of losses etc within section 99(1)(d) to
(g)) the references to the surrendering company’s gross profits of the surrender
period do not include the company’s relevant ring fence profits for that period.
(3)
The company’s “relevant ring fence profits” for that period are—
(a)
if for that period there are no qualifying charitable donations made by
5
the company that are allowable under Part 6 (charitable donations
relief), the company’s ring fence profits for that period, or
(b)
otherwise, so much of the company’s ring fence profits for that period
as exceeds the amount of the qualifying charitable donations made by
the company that are allowable under section 189 for that period.
10
(4)
In this section “claimant company” and “surrendering company” are to be read
in accordance with Part 5 (group relief) (see section 188).
306
Capital allowances
(1)
A capital allowance may not to any extent be given effect under section 259 or
260 of CAA 2001 (special leasing) by deduction from a company’s ring fence
15
profits.
(2)
But subsection (1) does not apply to a capital allowance which falls to be made
to a company for any accounting period in respect of an asset which—
(a)
is used in the relevant accounting period by a company associated with
it, and
20
(b)
is so used in carrying on oil extraction activities.
(3)
“The relevant accounting period” means that for which the allowance in
question first falls to be made to the company (whether or not it can to any
extent be given effect in that period under section 259 of CAA 2001).
Chapter 5
25
Ring fence expenditure supplement
Introduction
307
Overview of Chapter
(1)
This Chapter entitles a company carrying on a ring fence trade, on making a
claim in respect of an accounting period, to a supplement in respect of—
30
(a)
qualifying pre-commencement expenditure incurred before the trade is
set up and commenced,
(b)
losses incurred in the trade, and
(c)
some or all of the supplement allowed in respect of earlier periods.
(2)
Sections 308 to 314 make provision about the application and interpretation of
35
this Chapter.
(3)
Sections 315 to 320 make provision about supplement in relation to
expenditure incurred by the company—
(a)
with a view to carrying on a ring fence trade, but
(b)
in an accounting period before the company sets up and commences
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that trade.

Corporation Tax Bill
Part 8 — Oil activities
Chapter 5 — Ring fence expenditure supplement
158

(4)
Sections 321 to 329 make provision about supplement in relation to losses
incurred in carrying on the ring fence trade.
(5)
There is a limit on the number of accounting periods (6) in respect of which a
company may claim supplement.
(6)
In determining the amount of supplement allowable, reductions fall to be
5
made in respect of—
(a)
disposal receipts in respect of any asset representing qualifying pre-
commencement expenditure.
(b)
ring fence losses that could be deducted under section 37 (relief for
trade losses against total profits) or section 42 (ring fence trades: further
10
extension of period for relief) from ring fence profits of earlier periods,
(c)
ring fence losses incurred in earlier periods that fall to be used under
section 45 (carry forward of trade loss against subsequent trade profits)
to reduce profits of succeeding periods,
(d)
unrelieved group ring fence profits.
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Application and interpretation
308
Qualifying companies
(1)
This Chapter applies in relation to any company which—
(a)
carries on a ring fence trade, or
(b)
is engaged in any activities with a view to carrying on a ring fence
20
trade.
(2)
In this Chapter such a company is referred to as a “qualifying company”.
309
Accounting periods
(1)
In this Chapter, in the case of a qualifying company—
“the commencement period” means the accounting period in which the
25
company sets up and commences its ring fence trade,
“post-commencement period” means an accounting period beginning on
or after 1 January 2006—
(a)
which is the commencement period, or
(b)
which ends after the commencement period, and
30
“pre-commencement period” means an accounting period—
(a)
beginning on or after 1 January 2006, and
(b)
ending before the commencement period.
(2)
For the purposes of this Chapter, a company not within the charge to
corporation tax which incurs any expenditure is to be treated as having such
35
accounting periods as it would have if—
(a)
it carried on a trade consisting of the activities in respect of which the
expenditure is incurred, and
(b)
it had started to carry on that trade when it started to carry on the
activities in the course of which the expenditure is incurred.
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(3)
In the case of an accounting period (a “straddling period”) of a qualifying
company beginning before 1 January 2006 and ending on or after that date—
(a)
so much of the straddling period as falls before 1 January 2006, and

Corporation Tax Bill
Part 8 — Oil activities
Chapter 5 — Ring fence expenditure supplement
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(b)
so much of the straddling period as falls on or after that date,

are treated as separate accounting periods for the purposes of this Chapter.
(4)
But special provision is made elsewhere in this Chapter in relation to
straddling periods (see sections 311, 324 and 327(4) to (7)).
310
The relevant percentage
5
(1)
For the purposes of this Chapter, the relevant percentage for an accounting
period is 6%.
(2)
The Treasury may by order vary the percentage for the time being specified in
subsection (1) for such accounting periods as may be specified in the order.
311
Limit on number of accounting periods for which supplement may be
10
claimed
(1)
A company may claim supplement under this Chapter in respect of no more
than 6 accounting periods.
(2)
The accounting periods in respect of which claims are made need not be
consecutive.
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(3)
A claim for supplement by the company under Schedule 19B to ICTA
(exploration expenditure supplement) in respect of an accounting period is to
count for the purposes of this section as a claim for supplement under this
Chapter in respect of that accounting period.
(4)
But, if the company makes a claim for supplement under this Chapter in
20
respect of the deemed accounting period, any claim for supplement by the
company under Schedule 19B to ICTA in respect of the Schedule 19B deemed
accounting period is to be ignored for the purposes of this section.
(5)
In subsection (4)—
“the deemed accounting period” means the deemed accounting period
25
under section 309(3) beginning on 1 January 2006, and
“the Schedule 19B deemed accounting period” means the deemed
accounting period under paragraph 3(3) of Schedule 19B to ICTA
ending before 1 January 2006.
312
Qualifying pre-commencement expenditure
30
(1)
For the purposes of this Chapter, expenditure is “qualifying pre-
commencement expenditure” if it meets each of conditions A to D.
(2)
Condition A is that the expenditure is incurred on or after 1 January 2006.
(3)
Condition B is that the expenditure is incurred in the course of oil extraction
activities.
35
(4)
Condition C is that the expenditure is incurred by a company with a view to
carrying on a ring fence trade but before the company sets up and commences
the ring fence trade.
(5)
Condition D is that the expenditure—

Corporation Tax Bill
Part 8 — Oil activities
Chapter 5 — Ring fence expenditure supplement
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(a)
is subsequently allowable as a deduction in calculating the profits of the
ring fence trade for the commencement period (whether or not any part
of it is so allowable for any post-commencement period), or
(b)
is relevant R&D expenditure incurred by an SME.
(6)
For the purposes of this section, expenditure incurred by a company is
5
“relevant R&D expenditure incurred by an SME” if—
(a)
the company makes an election under section 1045 of CTA 2009
(alternative treatment for pre-trading expenditure: deemed trading
loss) in respect of that expenditure, but
(b)
the company does not make a claim for an R&D tax credit under section
10
1054 of that Act in respect of that expenditure.
(7)
In the case of any qualifying pre-commencement expenditure which is relevant
R&D expenditure incurred by an SME, the amount of that expenditure is
treated for the purposes of this Chapter as being equal to 150% of its actual
amount.
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(8)
In the case of any qualifying pre-commencement expenditure which is relevant
R&D expenditure incurred by a large company, the amount of that
expenditure is treated for the purposes of this Chapter as being equal to 125%
of its actual amount.
(9)
In subsection (8) “relevant R&D expenditure incurred by a large company”
20
means qualifying Chapter 5 expenditure, as defined in section 1076 of CTA
2009.
313
Unrelieved group ring fence profits for accounting periods
(1)
There is an amount of unrelieved group ring fence profits for an accounting
period of a qualifying company (“company Q”) if—
25
(a)
the company and any other company (“company X”) are members of
the same group, and
(b)
company X has an amount of taxable ring fence profits (see section 314)
for a corresponding accounting period.
(2)
An accounting period of company X corresponds to an accounting period of
30
company Q if—
(a)
it coincides with, or falls wholly within, the accounting period of
company Q, or
(b)
it falls partly within the accounting period of company Q.
(3)
If an accounting period of company X—
35
(a)
coincides with an accounting period of company Q, or
(b)
falls wholly within an accounting period of company Q,

there is, for the accounting period of company Q, an amount of unrelieved
group ring fence profits equal to the whole of company X’s taxable ring fence
profits for its accounting period.
40
(4)
If an accounting period of company X falls partly within an accounting period
of company Q—
(a)
there is an amount of unrelieved group ring fence profits for the
accounting period of company Q, and
(b)
that amount is an amount equal to the part of company X’s taxable ring
45
fence profits for its accounting period that is attributable, on an

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Part 8 — Oil activities
Chapter 5 — Ring fence expenditure supplement
161

apportionment in accordance with section 1172, to the part of that
period which falls within the accounting period of company Q.
(5)
For the purposes of this section, two companies are members of the same
group if they are members of the same group of companies within the meaning
of Part 5 (group relief).
5
(6)
This section applies for the purposes of this Chapter.
314
Taxable ring fence profits for an accounting period
For the purposes of this Chapter, a company has taxable ring fence profits for
an accounting period if it has an amount of ring fence profits which is
chargeable to corporation tax for that accounting period after any group relief
10
claimed under Part 5 (group relief).
Pre-commencement supplement
315
Supplement in respect of a pre-commencement accounting period
(1)
If—
(a)
a qualifying company incurs qualifying pre-commencement
15
expenditure in respect of a ring fence trade, and
(b)
the expenditure is incurred before the commencement period,

the company may claim supplement under this section (“pre-commencement
supplement”) in respect of one or more pre-commencement periods.
(2)
Any pre-commencement supplement allowed on a claim in respect of a pre-
20
commencement period is to be treated as expenditure—
(a)
which is incurred by the company in the commencement period, and
(b)
which is allowable as a deduction in calculating the profits of the ring
fence trade for that period.
(3)
The amount of the supplement for any pre-commencement period in respect of
25
which a claim under this section is made is the relevant percentage for that
period of the reference amount for that period.
(4)
If the pre-commencement period is a period of less than 12 months, the amount
of the supplement for the period (apart from this subsection) is to be reduced
proportionally.
30
(5)
Sections 316 to 319 have effect for the purpose of determining the reference
amount for a pre-commencement period.
316
The mixed pool of qualifying pre-commencement expenditure and
supplement previously allowed
(1)
For the purpose of determining the amount of any pre-commencement
35
supplement, a qualifying company is to be taken to have had, at all times in the
pre-commencement periods of the company, a continuing mixed pool of—
(a)
the relevant amount (if any) which the company carries forward under
Schedule 19B to ICTA,
(b)
qualifying pre-commencement expenditure, and
40
(c)
pre-commencement supplement.

Corporation Tax Bill
Part 8 — Oil activities
Chapter 5 — Ring fence expenditure supplement
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(2)
The pool is to be taken to have consisted of—
(a)
the relevant amount (if any) which the company carries forward under
Schedule 19B to ICTA,
(b)
the company’s qualifying pre-commencement expenditure, allocated
to the pool for each pre-commencement period in accordance with
5
subsection (3), and
(c)
the company’s pre-commencement supplement, allocated to the pool
for each pre-commencement period in accordance with subsection (4).
(3)
To allocate qualifying pre-commencement expenditure to the pool for any pre-
commencement period, take the following steps—
10
Step 1

Count as eligible expenditure for that period so much of the qualifying pre-
commencement expenditure mentioned in section 315(1) as was incurred in
that period.
Step 2
15

Find the total of all the eligible expenditure for that period (amount E).
Step 3

If section 317 applies, reduce amount E in accordance with that section.
Step 4

If section 318 applies, reduce (or, as the case may be, further reduce) amount E
20
in accordance with that section.


And so much of amount E as remains after making those reductions is to be
taken to have been added to the pool in that period
(4)
If any pre-commencement supplement is allowed on a claim in respect of a pre-
25
commencement period, the amount of that supplement is to be taken to have
been added to the pool in that period.
(5)
In this section references to the relevant amount (if any) which the company
carries forward under Schedule 19B to ICTA are to the amount (if any) in its
mixed pool for the purposes of Part 3 of Schedule 19B to ICTA immediately
30
before 1 January 2006.
317
Reduction in respect of disposal receipts under CAA 2001
(1)
This section applies in the case of the qualifying company if—
(a)
it incurs qualifying pre-commencement expenditure in respect of a ring
fence trade in any pre-commencement period,
35
(b)
it would, on the relevant assumption, be entitled to an allowance under
any provision of CAA 2001 in respect of that expenditure,
(c)
an event occurs in relation to any asset representing the expenditure in
any pre-commencement period, and
(d)
the event would, on the relevant assumption, require a disposal value
40
(the “deductible amount”) to be brought into account under any
provision of CAA 2001 for any pre-commencement period.
(2)
The relevant assumption is that the company was carrying on the ring fence
trade—