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 5 — Ring fence expenditure supplement
163

(a)
when the expenditure was incurred, and
(b)
when the event giving rise to the disposal value occurred.
(3)
For the purpose of allocating qualifying pre-commencement expenditure to
the pool for each pre-commencement period—
(a)
find the total amount of the disposal values in the case of all such events
5
(amount D), and
(b)
taking later periods before earlier periods, reduce (but not below nil)
amount E for any pre-commencement period by setting against it so
much of amount D as does not fall to be set against amount E for a later
pre-commencement period.
10
318
Reduction in respect of unrelieved group ring fence profits
(1)
This section applies if there is an amount of unrelieved group ring fence profits
for a pre-commencement period.
(2)
For the purpose of allocating qualifying pre-commencement expenditure to
the pool for that period—
15
(a)
find so much (if any) of amount E for that period as remains after any
reduction falling to be made under section 317, and
(b)
reduce that amount (but not below nil) by setting against it a sum equal
to the aggregate of the amounts of unrelieved group ring fence profits
for the period.
20
319
The reference amount for a pre-commencement period
For the purposes of section 315, the reference amount for a pre-commencement
period is the amount in the pool at the end of the period—
(a)
after the addition to the pool of any qualifying pre-commencement
expenditure allocated to the pool for that period in accordance with
25
section 316(3), but
(b)
before determining, and adding to the pool, the amount of any pre-
commencement supplement claimed in respect of the period.
320
Claims for pre-commencement supplement
(1)
Any claim for pre-commencement supplement in respect of a pre-
30
commencement period must be made as a claim for the commencement
period.
(2)
Paragraph 74 of Schedule 18 to FA 1998 (company tax returns etc: time limit for
claims for group relief) applies in relation to a claim for pre-commencement
supplement as it applies in relation to a claim for group relief.
35
Post-commencement supplement
321
Supplement in respect of a post-commencement period
(1)
A qualifying company which incurs a ring fence loss (see section 323) in any
post-commencement period may claim supplement under this section (“post-
commencement supplement”) in respect of—
40
(a)
that period, or

Corporation Tax Bill
Part 8 — Oil activities
Chapter 5 — Ring fence expenditure supplement
164

(b)
any subsequent accounting period in which it carries on its ring fence
trade.
(2)
Any post-commencement supplement allowed on a claim in respect of a post-
commencement period is to be treated for the purposes of the Corporation Tax
Acts (other than the post-commencement supplement provisions or Part 4 of
5
Schedule 19B to ICTA) as if it were a loss—
(a)
which is incurred in carrying on the ring fence trade in that period, and
(b)
which falls in whole to be used under section 45 (carry forward of trade
loss against subsequent trade profits) to reduce trading income from
the ring fence trade in succeeding accounting periods.
10
(3)
Paragraph 74 of Schedule 18 to FA 1998 (company tax returns etc: time limit for
claims for group relief) applies in relation to a claim for post-commencement
supplement as it applies in relation to a claim for group relief.
(4)
In this Chapter “the post-commencement supplement provisions” means this
section and sections 322 to 329.
15
322
Amount of post-commencement supplement for a post-commencement
period
(1)
The amount of the post-commencement supplement for any post-
commencement period in respect of which a claim under section 321 is made
is the relevant percentage for that period of the reference amount for that
20
period.
(2)
If the post-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.
(3)
Sections 325 to 329 have effect for the purpose of determining the reference
25
amount for a post-commencement period.
323
Ring fence losses
(1)
If—
(a)
in any post-commencement period (“the period of the loss”) a
qualifying company carrying on a ring fence trade incurs a loss in the
30
trade, and
(b)
some or all of the loss falls to be used under section 45 (carry forward
of trade loss against subsequent trade profits) to reduce trading income
from the trade in succeeding accounting periods,

so much of the loss as falls to be so used is a “ring fence loss” of the company.
35
(2)
In determining for the purposes of the post-commencement supplement
provisions how much of a loss incurred in a ring fence trade falls to be used as
mentioned in subsection (1)(b), the following assumptions are to be made.
(3)
The first assumption is that every claim is made that could be made by the
company under section 37 (relief for trade losses against total profits) to deduct
40
losses incurred in the ring fence trade from ring fence profits of earlier post-
commencement periods.
(4)
The second assumption is that (where appropriate) section 42 (ring fence
trades: further extension of period for relief) applies in relation to every such
claim under section 37.
45

Corporation Tax Bill
Part 8 — Oil activities
Chapter 5 — Ring fence expenditure supplement
165

(5)
This section is subject to section 324 (special rule for straddling periods).
(6)
This section has effect for the purposes of the post-commencement supplement
provisions.
324
Special rule for straddling periods
(1)
This section applies if the period of the loss is the deemed accounting period
5
under section 309(3) beginning on 1 January 2006 (“the deemed accounting
period”).
(2)
The amount of ring fence loss in the deemed accounting period is determined
as follows—
Step 1
10

Calculate so much of the ring fence loss in the straddling period as, for the
purposes of Part 4 of Schedule 19B to ICTA, is attributable to qualifying E&A
allowances for the straddling period.

The amount given by this step is “the qualifying Schedule 19B amount”.
Step 2
15

Calculate so much of the ring fence loss in the straddling period as is
attributable to allowances for the straddling period under Part 6 of CAA 2001
in respect of relevant expenditure.

For the purposes of this step “relevant expenditure” means expenditure
incurred by the company on or after 1 January 2006 which, but for that fact,
20
would be qualifying E&A expenditure for the purposes of Schedule 19B to
ICTA.

For the purposes of this step a ring fence loss is attributable to those allowances
so far as the amount of the loss (less the qualifying Schedule 19B amount) does
not exceed the amount of those allowances for that period.
25

The amount given by this step is “the amount of the post-1 January 2006 E&A
allowances”.
Step 3

Deduct the qualifying Schedule 19B amount and the amount of the post-1
January 2006 E&A allowances from the amount of the ring fence loss in the
30
straddling period.
Step 4

Apportion the remaining amount of that loss (if any) to the deemed accounting
period in proportion to the number of days in the deemed accounting period
that fall in the straddling period.
35

The amount given by this step is “the amount of the apportioned loss”
Step 5

The amount of the ring fence loss in the deemed accounting period is the
amount of the apportioned loss plus the amount of the post-1 January 2006
E&A allowances.
40
(3)
In this section “the straddling period”, in relation to a qualifying company,
means an accounting period of the company—
(a)
beginning before 1 January 2006, and
(b)
ending on or after that date,

Corporation Tax Bill
Part 8 — Oil activities
Chapter 5 — Ring fence expenditure supplement
166


disregarding section 309(3).
(4)
In this section references to the ring fence loss in the straddling period are to
that loss determined on the assumption that the straddling period is the period
of the loss for the purposes of section 323.
(5)
This section has effect for the purposes of the post-commencement supplement
5
provisions.
325
The pool of ring fence losses and the pool of non-qualifying Schedule 19B
losses
(1)
For the purpose of determining the amount of any post-commencement
supplement, a qualifying company is to be taken at all times in its post-
10
commencement periods to have a continuing mixed pool (the “ring fence
pool”) of—
(a)
the carried forward qualifying Schedule 19B amount (if any),
(b)
the company’s ring fence losses, and
(c)
post-commencement supplement.
15
(2)
The ring fence pool continues even if the amount in it is nil.
(3)
For the purpose of determining the amount of any post-commencement
supplement, a qualifying company is also to be taken in its post-
commencement periods to have a non-qualifying pool consisting of the carried
forward non-qualifying Schedule 19B amount.
20
(4)
But the non-qualifying pool ceases to exist when the amount in it is reduced to
nil.
(5)
In this section—
“the carried forward qualifying Schedule 19B amount”, in relation to a
qualifying company, means the amount in its qualifying pool for the
25
purposes of Part 4 of Schedule 19B to ICTA immediately before 1
January 2006, and
“the carried forward non-qualifying Schedule 19B amount”, in relation to
a qualifying company, means the amount in its non-qualifying pool for
the purposes of Part 4 of Schedule 19B to that Act immediately before 1
30
January 2006.
326
The ring fence pool
(1)
The ring fence pool consists of—
(a)
the carried forward qualifying Schedule 19B amount (if any),
(b)
the company’s ring fence losses, allocated to the pool in accordance
35
with subsection (2)(a), and
(c)
the company’s post-commencement supplement, allocated to the pool
in accordance with subsection (2)(b).
(2)
The allocation of ring fence losses and post-commencement supplement to the
pool is made as follows—
40
(a)
the amount of a ring fence loss is added to the pool in the period of the
loss, and

Corporation Tax Bill
Part 8 — Oil activities
Chapter 5 — Ring fence expenditure supplement
167

(b)
if any post-commencement supplement is allowed on a claim in respect
of a post-commencement period, the amount of that supplement is
added to the pool in that period.
(3)
The amount in the ring fence pool is subject to reductions in accordance with
the following provisions of this Chapter.
5
(4)
If a reduction in the amount in the ring fence pool falls to be made in any
accounting period, the reduction is to be made—
(a)
after the addition to the pool of the amount of any ring fence losses
allocated to the pool in that period in accordance with subsection (2)(a),
but
10
(b)
before determining, and adding to the pool, the amount of any
supplement claimed in respect of the period,

and references to the amount in the pool are to be read accordingly.
(5)
In this section “the carried forward qualifying Schedule 19B amount”, in
relation to a qualifying company, means the amount in its qualifying pool for
15
the purposes of Part 4 of Schedule 19B to ICTA immediately before 1 January
2006.
327
Reductions in respect of utilised ring fence losses
(1)
If one or more ring fence losses are used under section 45 (carry forward of
trade loss against subsequent trade profits) to reduce any profits of a post-
20
commencement period, reductions are to be made in that period in accordance
with this section.
(2)
If the company has a non-qualifying pool, the amount in the non-qualifying
pool is to be reduced (but not below nil) by setting against it a sum equal to the
total amount used as mentioned in subsection (1).
25
(3)
If—
(a)
any of that sum remains after being so set against the amount in the
non-qualifying pool, or
(b)
the company does not have a non-qualifying pool,

the amount in the ring fence pool is to be reduced (but not below nil) by setting
30
against it so much of that sum as so remains or (as the case may be) a sum equal
to the total amount used as mentioned in subsection (1).
(4)
If the post-commencement period is the deemed accounting period under
section 309(3) beginning on 1 January 2006 (“the deemed accounting period”),
the amount of the profits of the deemed accounting period is determined as
35
follows.
(5)
The amount of the profits of the straddling period is apportioned to the
deemed accounting period in proportion to the number of days in the deemed
accounting period that fall in the straddling period.
(6)
The apportioned amount is taken for the purposes of this section to be the
40
amount of the profits of the deemed accounting period.
(7)
In this section “the straddling period”, in relation to a qualifying company,
means an accounting period of the company—
(a)
beginning before 1 January 2006, and
(b)
ending on or after that date,
45

Corporation Tax Bill
Part 8 — Oil activities
Chapter 6 — Supplementary charge in respect of ring fence trades
168


disregarding section 309(3).
328
Reductions in respect of unrelieved group ring fence profits
(1)
If there is an amount of unrelieved group ring fence profits for a post-
commencement period, reductions are to be made in that period in accordance
with this section.
5
(2)
If, after making any reductions that fall to be made in accordance with section
327, the company does not have a non-qualifying pool, the remaining amount
in the ring fence pool is to be reduced (but not below nil) by setting against it a
sum equal to the aggregate of the amounts of unrelieved group ring fence
profits for the period.
10
(3)
If, after making any reductions that fall to be made in accordance with section
327, the company has an amount in a non-qualifying pool, the amount in that
pool is to be reduced (but not below nil) by setting against it a sum equal to the
aggregate of the amounts of unrelieved group ring fence profits for the period.
(4)
If any of that sum remains after being so set against the amount in the non-
15
qualifying pool, the remaining amount in the ring fence pool is to be reduced
(but not below nil) by setting against it so much of that sum as so remains.
(5)
For the purposes of this section references to the remaining amount in the ring
fence pool are references to so much (if any) of the amount in the ring fence
pool as remains after making any reductions that fall to be made in accordance
20
with section 327.
329
The reference amount for a post-commencement period
For the purposes of section 322 the reference amount for a post-commencement
period is so much of the amount in the ring fence pool as remains after making
any reductions required by section 327 or 328.
25
Chapter 6
Supplementary charge in respect of ring fence trades
330
Supplementary charge in respect of ring fence trades
(1)
If a company carries on a ring fence trade in an accounting period, a sum equal
to 20% of its adjusted ring fence profits for that period is to be charged on the
30
company as if it were an amount of corporation tax chargeable on the
company.
(2)
A company’s “adjusted ring fence profits” for an accounting period are the
amount which, on the assumption mentioned in subsection (3), would be
determined for that period as the profits of the company’s ring fence trade
35
chargeable to corporation tax.
(3)
The assumption is that financing costs are left out of account in calculating—
(a)
the amount of the profits or loss of any ring fence trade of the company
for an accounting period, and
(b)
if for any such period the whole or part of any loss relief is surrendered
40
to the company in accordance with section 305(1), the amount of that
relief or part.

Corporation Tax Bill
Part 8 — Oil activities
Chapter 6 — Supplementary charge in respect of ring fence trades
169

(4)
See also section 331 (meaning of financing costs etc).
(5)
This Chapter is subject to Chapter 7 (which contains provision about the
reduction of the supplementary charge for certain new oil fields).
331
Meaning of “financing costs” etc
(1)
This section applies for the purposes of section 330.
5
(2)
“Financing costs” means the costs of debt finance.
(3)
In calculating the costs of debt finance for an accounting period the matters to
be taken into account include—
(a)
any costs giving rise to debits in respect of debtor relationships of the
company under Part 5 of CTA 2009 (loan relationships), other than
10
debits in respect of exchange losses from such relationships,
(b)
any exchange gain or loss from a debtor relationship of the company in
relation to debt finance,
(c)
any credit or debit falling to be brought into account in accordance with
Part 7 of CTA 2009 (derivative contracts) in relation to debt finance,
15
(d)
the financing cost implicit in a payment under a finance lease,
(e)
if the company is the lessee under a long funding operating lease, the
amount deductible in respect of payments under the lease in
calculating the profits of the lessee for corporation tax purposes (after
first making against any such amount any reductions falling to be made
20
as a result of section 379 (lessee under long funding operating lease)),
and,
(f)
any other costs arising from what would be considered in accordance
with generally accepted accounting practice to be a financing
transaction.
25
(4)
If an amount representing the whole or part of a payment falling to be made by
a company—
(a)
falls (or would fall) to be treated as a finance charge under a finance
lease for the purposes of accounts which relate to that company and one
or more other companies and are prepared in accordance with
30
generally accepted accounting practice, but
(b)
is not so treated in the accounts of the company,

the amount is to be treated as a financing cost within subsection (3)(d).
(5)
If—
(a)
in calculating the adjusted ring fence profits of a company for an
35
accounting period, an amount falls to be left out of account as a result
of subsection (3)(d), but
(b)
the whole or any part of that amount is repaid,

the repayment is also to be left out of account in calculating the adjusted ring
fence profits of the company for any accounting period.
40
(6)
In this section “finance lease” means any arrangements which—
(a)
provide for an asset to be leased or otherwise made available by a
person to another person (“the lessee”), and
(b)
under generally accepted accounting practice—