Part 8U.K.Oil activities

Chapter 1U.K.Introduction

270Overview of PartU.K.

(1)This Part is about the corporation tax treatment of oil activities.

(2)Chapter 2 contains basic definitions used in this Part.

(3)Chapter 3 treats oil-related activities as a separate trade.

(4)Chapter 4 makes provision about the calculation of profits from oil activities.

(5)Chapter 5 makes provision about ring fence expenditure supplement.

F1(5A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)Chapter 6 makes provision about the supplementary charge in respect of ring fence trades.

[F2(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.]

F3(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F4(7A)Chapter 8 makes provision about the reduction of supplementary charge by an allowance for capital expenditure incurred for the purposes of onshore oil-related activities.]

[F5(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.]

(8)For the meaning of—

(a)“oil-related activities”, see section 274, [F6and]

(b)“ring fence trade”, see section 277, F7...

F7(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 2U.K.Basic definitions

271“Associated companies”U.K.

(1)For the purposes of this Part two companies are associated with one another if—

(a)one is a 51% subsidiary of the other,

(b)each is a 51% subsidiary of a third company,

(c)one is owned by a consortium of which the other is a member,

(d)one has control of the other, or

(e)both are under the control of the same person.

(2)For the purposes of this section—

(a)a company is owned by a consortium if at least 75% of the company's ordinary share capital is beneficially owned by other companies each of which beneficially owns at least 5% of that capital, and

(b)the other companies each owning at least 5% of that capital are the members of the consortium.

(3)In this section “control” has the same meaning as in Part 10 (close companies) (see sections 450 and 451).

272“Oil extraction activities”U.K.

(1)In this Part “oil extraction activities” means activities within any of subsections (2) to (5) (but see also section 291(6)).

(2)Activities of a company in searching for oil in the United Kingdom or a designated area or causing such searching to be carried out for it.

(3)Activities of a company in extracting, or causing to be extracted for it, oil at any place in the United Kingdom or a designated area under rights which—

(a)authorise the extraction, and

(b)are held by it or by a company associated with it.

(4)Activities of a company in transporting, or causing to be transported for it, oil extracted at any such place not on dry land under rights which—

(a)authorise the extraction, and

(b)are held as mentioned in subsection (3)(b),

if the transportation meets condition A or B (see subsections (6) and (7)).

(5)Activities of a company in effecting, or causing to be effected for it, the initial treatment or initial storage of oil won from any oil field under rights which—

(a)authorise its extraction, and

(b)are held as mentioned in subsection (3)(b).

(6)Condition A is that the transportation is to the place where the oil is first landed in the United Kingdom.

(7)Condition B is that the transportation—

(a)is to the place in the United Kingdom, or

(b)in the case of oil first landed in another country, is to the place in that or any other country (other than the United Kingdom),

at which the seller in a sale at arm's length could reasonably be expected to deliver it (or, if there is more than one such place, the one nearest to the place of extraction).

(8)The definition of “initial storage” in section 12(1) of OTA 1975 applies for the purposes of this section.

(9)But in its application for those purposes in relation to the company mentioned in subsection (5) and to oil won from any one oil field, that definition is to have effect as if the reference to the maximum daily production rate of oil for the field mentioned in that definition were to a share of that maximum daily production rate proportionate to that company's share of the oil won from that field.

(10)In this section “initial treatment” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act).

273“Oil rights”U.K.

In this Part “oil rights” means—

(a)rights to oil to be extracted at any place in the United Kingdom or a designated area, or

(b)rights to interests in or to the benefit of such oil.

274“Oil-related activities”U.K.

In this Part “oil-related activities” means—

(a)oil extraction activities, and

(b)any activities consisting of the acquisition, enjoyment or exploitation of oil rights.

275“Ring fence income”U.K.

In this Part “ring fence income” means income arising from oil extraction activities or oil rights.

276“Ring fence profits”U.K.

In this Part “ring fence profits”, in relation to an accounting period, means—

(a)if in accordance with section 197(3) of TCGA 1992 a company has an aggregate gain for that period, that gain and that company's ring fence income (if any) for that period, or

(b)otherwise, that company's ring fence income for that period.

277“Ring fence trade”U.K.

In this Part “ring fence trade” means activities which—

(a)are within the definition of “oil-related activities” in section 274, and

(b)constitute a separate trade (whether because of section 279 or otherwise).

278Other definitionsU.K.

In this Part—

• “chargeable period” has the same meaning as in Part 1 of OTA 1975 (see section 1(3) of that Act),

• “designated area” means an area designated by Order in Council under section 1(7) of the Continental Shelf Act 1964,

• “oil” means any substance won or capable of being won under the authority of a licence granted under Part 1 of the Petroleum Act 1998 or the Petroleum (Production) Act (Northern Ireland) 1964 (c. 28 (N.I.)), other than methane gas won in the course of operations for making and keeping mines safe,

• “oil field” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act),

• “OTA 1975” means the Oil Taxation Act 1975, and

• “participator” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act).

Chapter 3U.K.Deemed separate trade

279Oil-related activities treated as separate tradeU.K.

If a company carries on any oil-related activities as part of a trade, those activities are treated for the purposes of the charge to corporation tax on income as a separate trade, distinct from all other activities carried on by the company as part of the trade.

[F8CHAPTER 3AU.K.Rates at which corporation tax is charged on ring fence profits

The ratesU.K.

279ACorporation tax rates on ring fence profitsU.K.

(1)Corporation tax is charged on ring fence profits at the main ring fence profits rate.

(2)But subsection (3) provides for tax to be charged at the small ring fence profits rate instead of the main ring fence profits rate in certain circumstances.

(3)Corporation tax is charged at the small ring fence profits rate on a company's ring fence profits of an accounting period if—

(a)the company is UK resident in the accounting period, and

(b)its augmented profits of the accounting period do not exceed the lower limit.

(4)In this Act—

• “the main ring fence profits rate” means 30%, and

• “the small ring fence profits rate” means 19%.

Marginal reliefU.K.

279BCompany with only ring fence profitsU.K.

(1)This section applies if—

(a)a company is UK resident in an accounting period,

(b)its augmented profits of the accounting period—

(i)exceed the lower limit, but

(ii)do not exceed the upper limit, and

(c)its augmented profits of that period consist exclusively of ring fence profits.

(2)The corporation tax charged on the company's taxable total profits of the accounting period is reduced by an amount equal to—

(3)In this Chapter “the marginal relief fraction” means 11/400ths.

279CCompany with ring fence profits and other profitsU.K.

(1)This section applies if—

(a)a company is UK resident in an accounting period,

(b)its augmented profits of the accounting period—

(i)exceed the lower limit, but

(ii)do not exceed the upper limit, and

(c)its augmented profits of that period consist of both ring fence profits and other profits.

(2)The corporation tax charged on the company's taxable total profits of the accounting period is reduced by the sum equal to the marginal relief fraction of the ring fence amount.

279DThe ring fence amountU.K.

(1)In section 279C “the ring fence amount” means the amount given by the formula—

(2)In this section—

The lower limit and the upper limitU.K.

279EThe lower limit and the upper limitU.K.

(1)This section gives the meaning in this Chapter of “the lower limit” and “the upper limit” in relation to an accounting period of a company (“A”).

(2)If no company is a related 51% group company of A in the accounting period—

(a)the lower limit is £300,000, and

(b)the upper limit is £1,500,000.

(3)If one or more companies are related 51% group companies of A in the accounting period—

(a)the lower limit is—

and

(b)the upper limit is—

(4)For an accounting period of less than 12 months the lower limit and the upper limit are proportionately reduced.

Related 51% group companiesU.K.

279F“Related 51% group company”U.K.

(1)For the purposes of this Chapter a company (“B”) is a related 51% group company of another company (“A”) in an accounting period if for any part of the accounting period—

(a)A is a 51% subsidiary of B,

(b)B is a 51% subsidiary of A, or

(c)both A and B are 51% subsidiaries of the same company.

(2)The rule in subsection (1) applies to each of two or more related 51% group companies even if they are related 51% group companies for different parts of the accounting period.

(3)But a related 51% group company is ignored for the purposes of section 279E if—

(a)it has not carried on a trade or business at any time in the accounting period, or

(b)it was a related 51% group company for part only of the accounting period and has not carried on a trade or business at any time in that part of the accounting period.

(4)Subsection (3) is subject to subsections (5) to (9).

(5)Subsection (6) applies if a company carries on a business of making investments in an accounting period and throughout the period the company—

(a)carries on no trade,

(b)has one or more 51% subsidiaries, and

(c)is a passive company.

(6)The company is treated for the purposes of subsection (3) as not carrying on a business at any time in the accounting period.

(7)A company is a passive company throughout an accounting period only if the following requirements are met—

(a)it has no assets in that period, other than shares in companies which are its 51% subsidiaries,

(b)no income arises to it in that period other than dividends,

(c)if income arises to it in that period in the form of dividends—

(i)the redistribution condition is met (see subsection (8)), and

(ii)the dividends are [F9exempt ABGH distributions] received by it,

(d)no chargeable gains accrue to it in that period,

(e)no expenses of management of the business mentioned in subsection (5) are referable to that period, and

(f)no qualifying charitable donations are deductible from the company's total profits of that period.

(8)The redistribution condition is that—

(a)the company pays dividends to one or more of its shareholders in the accounting period, and

(b)the total amount paid in the form of those dividends is at least equal to the amount of the income arising to the company in the form of dividends in that period.

(9)If income arises to a company in an accounting period in the form of a dividend and the requirement in subsection (7)(c) is met in respect of the income—

(a)neither the dividend nor any asset representing it is treated as an asset of the company in that accounting period for the purposes of subsection (7)(a), and

(b)no right of the company to receive the dividend is treated as an asset of the company for the purposes of subsection (7)(a) in that period or any earlier accounting period.

[F10(10)In subsection (7)(c) “exempt ABGH distribution” means a distribution which—

(a)is a distribution for the purposes of the Corporation Tax Acts only because it falls within paragraph A, B, G or H in section 1000(1), and

(b)is exempt for the purposes of Part 9A of CTA 2009 (company distributions).]

Augmented profitsU.K.

279G“Augmented profits”U.K.

(1)For the purposes of this Chapter a company's augmented profits of an accounting period are—

(a)the company's adjusted taxable total profits of that period, plus

(b)any [F11exempt ABGH distributions] received by the company that [F12are] not excluded by subsection (3).

(2)A company's “adjusted taxable total profits” of a period are what would have been the company's taxable total profits of the period in the absence of sections 1(2A), 2B and 8(4A) of TCGA 1992 and section 2(2A) of CTA 2009 (certain gains on relevant high value disposals by companies etc chargeable to capital gains tax not corporation tax).

(3)This subsection excludes any [F13exempt ABGH distribution] which the company (“the receiving company”) receives from a company which is—

(a)a 51% subsidiary of—

(i)the receiving company, or

(ii)a company of which the receiving company is a 51% subsidiary, or

(b)a trading company or relevant holding company that is a quasi-subsidiary of the receiving company.

(4)For the purposes of subsection (3)(b) a company is a quasi-subsidiary of the receiving company if—

(a)it is owned by a consortium of which the receiving company is a member,

(b)it is not a 75% subsidiary of any company, and

(c)no arrangements of any kind (whether in writing or not) exist by virtue of which it could become a 75% subsidiary of any company.

[F14(5)In this section “exempt ABGH distribution” means a distribution which—

(a)is a distribution for the purposes of the Corporation Tax Acts only because it falls within paragraph A, B, G or H in section 1000(1), and

(b)is exempt for the purposes of Part 9A of CTA 2009 (company distributions).]

279HInterpretation of section 279G(3) and (4)U.K.

(1)For the purposes of section 279G(3)(a), a company (“A”) is a 51% subsidiary of another company (“B”) only at times when—

(a)B would be beneficially entitled to more than 50% of any profits available for distribution to equity holders of A, and

(b)B would be beneficially entitled to more than 50% of any assets of A available for distribution to its equity holders on a winding up.

(2)The requirement in subsection (1) is in addition to the requirements of section 1154(2) (meaning of 51% subsidiary).

(3)In determining for the purposes of section 279G(3)(a) whether or not a company is a 51% subsidiary of another company (“C”), C is treated as not being the owner of share capital if—

(a)it owns the share capital indirectly,

(b)the share capital is owned directly by a company (“D”), and

(c)a profit on the sale of the shares would be a trading receipt for D.

(4)In section 279G(3)(b) and this section—

• “trading company” means a company whose business consists wholly or mainly of carrying on a trade or trades, and

• “relevant holding company” means a company whose business consists wholly or mainly of holding shares in or securities of trading companies that are its 90% subsidiaries.

(5)For the purposes of section 279G(4), a company is owned by a consortium if at least 75% of the company's ordinary share capital is beneficially owned by two or more companies each of which—

(a)beneficially owns at least 5% of that capital,

(b)would be beneficially entitled to at least 5% of any profits available for distribution to equity holders of the company, and

(c)would be beneficially entitled to at least 5% of any asset of the company available for distribution to its equity holders on a winding up.

(6)The companies meeting those conditions are called the members of the consortium.

(7)Chapter 6 of Part 5 (equity holders and profits or assets available for distribution) applies for the purposes of subsections (1) and (5) as it applies for the purposes of section 151(4)(a) and (b).]

Chapter 4U.K.Calculation of profits

Oil valuationU.K.

280Disposal to be valued by reference to section 2(5A) of OTA 1975U.K.

(1)This section applies if each of conditions A to G is met.

(2)Condition A is that oil is won from an oil field in the United Kingdom.

(3)Condition B is that there is a disposal of the oil by a company.

(4)Condition C is that the disposal is a disposal of the oil by the company crude in a sale at arm's length (as defined in paragraph 1 of Schedule 3 to OTA 1975).

(5)Condition D is that the circumstances are such that the price received or receivable—

(a)falls to be taken into account under section 2(5)(a) of that Act in calculating for petroleum revenue tax purposes the assessable profit or allowable loss accruing to the company in a chargeable period from the oil field, or

(b)would fall to be so taken into account, had the oil field been a taxable field (as defined in section 185 of FA 1993).

(6)Condition E is that the terms of the contract are such as are described in the opening words of section 2(5A) of OTA 1975 (transportation etc).

(7)Condition F is that, but for subsection (9), the company is not entitled to a transportation allowance in respect of the oil in calculating ring fence profits.

(8)Condition G is that the company does not claim a transportation allowance in respect of the oil in calculating for corporation tax purposes any profits that are not ring fence profits.

(9)Section 2(5A) of OTA 1975 is to apply in determining the amount which the company is to bring into account for the purposes of the charge to corporation tax on income in respect of the disposal as it applies (or would apply) for petroleum revenue tax purposes.

(10)In this section “transportation allowance”, in relation to any oil, means—

(a)a deduction in respect of the expense of transporting the oil as mentioned in the opening words of section 2(5A) of OTA 1975,

(b)a deduction in respect of any costs of or incidental to the transportation of the oil as so mentioned, or

(c)any such reduction in the price to be regarded as received or receivable for the oil as would result from the application of section 2(5A) of OTA 1975, if that provision applied for corporation tax purposes.

281Valuation where market value taken into account under section 2 of OTA 1975U.K.

(1)This section applies if a person disposes of oil in circumstances such that the market value of the oil—

(a)falls to be taken into account under section 2 of OTA 1975, otherwise than by virtue of paragraph 6 of Schedule 3 to that Act, in calculating for petroleum revenue tax purposes the assessable profit or allowable loss accruing to that person in a chargeable period from an oil field, or

(b)would so fall but for section 10 of that Act.

(2)For the purposes of the charge to corporation tax on income, the disposal of the oil, and its acquisition by the person to whom it was disposed of, are to be treated as having been for a consideration equal to the market value of the oil—

(a)as so taken into account under section 2 of that Act, or

(b)as would have been so taken into account under that section but for section 10 of that Act.

282Valuation where disposal not sale at arm's lengthU.K.

(1)This section applies if conditions A, B and C are met.

(2)Condition A is that a person disposes of oil acquired by the person—

(a)in the course of oil extraction activities carried on by the person, or

(b)as a result of oil rights held by the person.

(3)Condition B is that the disposal is not a sale at arm's length (as defined in paragraph 1 of Schedule 3 to OTA 1975).

(4)Condition C is that section 281 does not apply in relation to the disposal.

(5)For the purposes of the charge to corporation tax on income, the disposal of the oil, and its acquisition by the person to whom it was disposed of, are to be treated as having been for a consideration equal to the market value of the oil.

(6)Paragraphs 2 and 3A of Schedule 3 to OTA 1975 (definition of market value of oil including light gases) apply for the purposes of this section as they apply for the purposes of Part 1 of that Act, but with the following modifications.

(7)Those modifications are that—

(a)any reference in paragraph 2 to the notional delivery day for the actual oil is to be read as a reference to the day on which the oil is disposed of as mentioned in this section, and

(b)paragraph 2(4) is to be treated as omitted.

283Valuation where excess of nominated proceedsU.K.

(1)This section applies if an excess of nominated proceeds for a chargeable period—

(a)is taken into account in calculating a company's profits under section 2(5)(e) of OTA 1975, or

(b)would have been so taken into account if the company were chargeable to tax under OTA 1975 in respect of an oil field.

(2)For the purposes of the charge to corporation tax on income, the amount of the excess is to be added to the consideration which the company is treated as having received in respect of oil disposed of by it in the period.

(3)For corporation tax purposes, that amount is to be available to the company as a deduction in calculating the profits of any trade which (whether because of section 279 or otherwise) does not consist of activities falling within the definition of “oil-related activities” in section 274.

284Valuation where relevant appropriation but no disposalU.K.

(1)This section applies if conditions A and B are met.

(2)Condition A is that a company makes a relevant appropriation of oil without disposing of it.

(3)Condition B is that the company does so in circumstances such that the market value of the oil—

(a)falls to be taken into account under section 2 of OTA 1975 in calculating for petroleum revenue tax purposes the assessable profit or allowable loss accruing to it in a chargeable period from an oil field, or

(b)would so fall but for section 10 of that Act.

(4)For the purposes of the charge to corporation tax on income, the company is to be treated as having, at the time of the appropriation—

(a)sold the oil in the course of the separate trade consisting of activities falling within the definition of “oil-related activities” in section 274, and

(b)purchased it in the course of the separate trade consisting of activities not so falling.

(5)For those purposes, that sale and purchase is to be treated as having been at a price equal to the market value of the oil—

(a)as so taken into account under section 2 of OTA 1975, or

(b)as would have been so taken into account under that section but for section 10 of that Act.

(6)In this section “relevant appropriation” has the meaning given by section 12(1) of OTA 1975.

285Valuation where appropriation to refining etcU.K.

(1)This section applies if conditions A, B and C are met.

(2)Condition A is that a company appropriates oil acquired by it—

(a)in the course of oil extraction activities carried on by it, or

(b)as a result of oil rights held by it.

(3)Condition B is that the oil is appropriated to refining or to any use except the production purposes of an oil field (as defined in section 12(1) of OTA 1975).

(4)Condition C is that section 284 does not apply in relation to the appropriation.

(5)For the purposes of the charge to corporation tax on income—

(a)the company is to be treated as having, at the time of the appropriation, sold and purchased the oil as mentioned in section 284(4)(a) and (b), and

(b)that sale and purchase is to be treated as having been at a price equal to the market value of the oil.

(6)Paragraphs 2 and 3A of Schedule 3 to OTA 1975 (definition of market value of oil including light gases) apply for the purposes of this section as they apply for the purposes of Part 1 of that Act, but with the following modifications.

(7)Those modifications are that—

(a)any reference in paragraph 2 to the notional delivery day for the actual oil is to be read as a reference to the day on which the oil is appropriated as mentioned in this section,

(b)any reference in paragraphs 2 and 2A to oil being relevantly appropriated is to be read as a reference to its being appropriated as mentioned in this section, and

(c)paragraph 2(4) is to be treated as omitted.

[F15Hire of relevant assetsU.K.

285ARestriction on hire etc of relevant assets to be brought into accountU.K.

(1)This section applies if—

(a)oil contractor activities are, or are to be, carried out, and

(b)a company that carries on a ring fence trade makes, or is to make, one or more payments under a lease of a relevant asset, or part of a relevant asset, which is, or is to be, provided, operated or used in the relevant offshore service in question.

(2)The total amount that may be brought into account in respect of the payments for the purposes of calculating the company's ring fence profits in an accounting period is limited to the hire cap.

(3)The “hire cap” is an amount equal to the relevant percentage of TC for the accounting period, subject to subsection (4).

(4)If payments in relation to which subsection (2) or section 356N(2) (restriction on hire for oil contractors under Part 8ZA) applies are also made, or to be made, by one or more other companies in respect of the relevant asset or part, the “hire cap” is to be such proportion of the amount mentioned in subsection (3) as is just and reasonable, having regard (in particular) to the amounts of the payments made, or to be made, by each company.

(5)The “relevant percentage” and TC are to be determined in accordance with section 356N(5) to (16).

(6)To the extent that, by virtue of this section, payments within subsection (1)(b) cannot be brought into account for the purposes of calculating the company's ring fence profits in an accounting period, the payments may be—

(a)allowed as a deduction from the company's total profits for the accounting period, or

(b)treated as a surrenderable amount of the company for the accounting period for the purposes of Part 5 (group relief) (see section 99(7)) as if they were a trading loss,

but this is subject to subsection (7).

(7)No deduction may be made by virtue of subsection (6) from total profits so far as they are ring fence profits or contractor's ring fence profits.

(8)If the company or an associated person enters into arrangements the main purpose or one of the main purposes of which is to secure that subsection (2) does not apply in relation to one or more payments to any extent, that subsection applies in relation to the payments to the extent that it would not otherwise do so.

(9)In subsection (8) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

(10)In this section—

• “associated person” has the meaning given by section 356LB;

• “contractor's ring fence profits” has the meaning given by section 356LD;

• “oil contractor activities” and “relevant offshore service” have the meaning given by section 356L;

• “relevant asset” has the meaning given by section 356LA;

• “lease” has the meaning given by section 868.]

Loan relationshipsU.K.

286Restriction on debits to be brought into accountU.K.

(1)Debits may not be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of a company's loan relationships in any way that results in a reduction of what would otherwise be the company's ring fence profits, but this is subject to subsections (2) to (4).

(2)Subsection (1) does not apply so far as a loan relationship is in respect of money borrowed by the company which has been—

(a)used to meet expenditure incurred by the company in carrying on oil extraction activities or in acquiring oil rights otherwise than from a connected person, or

(b)appropriated to meeting expenditure to be so incurred by the company.

(3)Subsection (1) does not apply, in the case of debits falling to be brought into account as a result of section 329 of CTA 2009 in respect of a loan relationship that has not been entered into, so far as the relationship would have been one entered into for the purpose of borrowing money to be used or appropriated as mentioned in subsection (2).

(4)Subsection (1) does not apply, in the case of debits in respect of a loan relationship to which Chapter 2 of Part 6 of CTA 2009 (relevant non-lending relationships) applies, so far as—

(a)the payment of interest under the relationship is expenditure incurred as mentioned in subsection (2)(a), or

(b)the exchange loss arising from the relationship is in respect of a money debt on which the interest payable (if any) is, or would be, such expenditure.

(5)If a debit—

(a)falls to be brought into account for the purposes of Part 5 of CTA 2009 in respect of a loan relationship of a company, but

(b)as a result of this section cannot be brought into account in a way that results in any reduction of what would otherwise be the company's ring fence profits,

the debit is to be brought into account for those purposes as a non-trading debit despite anything in section 297 of that Act.

(6)References in this section to a loan relationship, in relation to the borrowing of money, do not include a relationship to which Chapter 2 of Part 6 of CTA 2009 (relevant non-lending relationships) applies.

287Restriction on credits to be brought into accountU.K.

(1)Credits in respect of exchange gains from a company's loan relationships may not be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in any way that results in an increase of what would otherwise be the company's ring fence profits, but this is subject to subsections (2) to (4).

(2)Subsection (1) does not apply so far as a loan relationship is in respect of money borrowed by the company which has been—

(a)used to meet expenditure incurred by the company in carrying on oil extraction activities or in acquiring oil rights otherwise than from a connected person, or

(b)appropriated to meeting expenditure to be so incurred by the company.

(3)Subsection (1) does not apply, in the case of credits falling to be brought into account as a result of section 329 of CTA 2009 in respect of a loan relationship that has not been entered into, so far as the relationship would have been one entered into for the purpose of borrowing money to be used or appropriated as mentioned in subsection (2).

(4)Subsection (1) does not apply, in the case of credits in respect of a loan relationship to which Chapter 2 of Part 6 of CTA 2009 (relevant non-lending relationships) applies, so far as—

(a)the payment of interest under the relationship is expenditure incurred as mentioned in subsection (2)(a), or

(b)the exchange gain arising from the relationship is in respect of a money debt on which the interest payable (if any) is, or would be, such expenditure.

(5)If a credit—

(a)falls to be brought into account for the purposes of Part 5 of CTA 2009 in respect of any loan relationship of a company, but

(b)as a result of this section cannot be brought into account in a way that results in any increase of what would otherwise be the company's ring fence profits,

the credit is to be brought into account for those purposes as a non-trading credit despite anything in section 297 of that Act.

(6)Section 286(6) applies for the purposes of this section.

[F16287ARestriction where debits or credits relate to decommissioning security settlementU.K.

(1)No debits or credits are to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of a company's loan relationship so far as the loan relationship is in respect of property comprised in a decommissioning security settlement.

(2)For the purposes of this section a settlement is a “decommissioning security settlement” if the sole or main purpose of the settlement is to provide security for the performance of obligations under an abandonment programme.

(3)In subsection (2)—

• “abandonment programme” means an abandonment programme approved under Part 4 of the Petroleum Act 1998 (including such a programme as revised), and

• “security” has the same meaning as in section 38A of that Act.]

Sale and lease-backU.K.

288Sale and lease-backU.K.

(1)This section applies if conditions A, B and C are met.

(2)Condition A is that a company (“the seller”) carrying on a trade has disposed of—

(a)an asset which was used for the purposes of that trade, or

(b)an interest in such an asset.

(3)Condition B is that the asset is used, under a lease, by the seller or a company associated with the seller (“the lessee”) for the purposes of a ring fence trade carried on by the lessee.

(4)Condition C is that the lessee uses the asset before the end of the period of two years beginning with the disposal.

(5)Subsection (6) applies to so much (if any) of the expenditure incurred by the lessee under the lease as—

(a)falls, in accordance with generally accepted accounting practice, to be treated in the accounts of the lessee as a finance charge, or

(b)falls, if the lease is a long funding operating lease, to be deductible in calculating the profits of the lessee for corporation tax purposes (after first making against any such expenditure any reductions falling to be made as a result of section 379 (lessee under long funding operating lease)).

But subsection (6) is subject to subsection (7).

(6)The expenditure is not allowable in calculating for the purposes of Part 3 of CTA 2009 the profits of the ring fence trade.

(7)Expenditure is not to be disallowed because of subsection (6) so far as the disposal mentioned in subsection (2) is made for a consideration which—

(a)is used to meet expenditure incurred by the seller in carrying on oil extraction activities or in acquiring oil rights otherwise than from a company associated with the seller, or

(b)is appropriated to meeting expenditure to be so incurred by the seller.

(8)If any expenditure—

(a)would, but for subsection (6), be allowable in calculating for the purposes of Part 3 of CTA 2009 the profits of the ring fence trade for an accounting period, but

(b)because of that subsection is not so allowable,

the expenditure is to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) as if it were a non-trading debit in respect of a loan relationship of the lessee for that period.

(9)In this section—

• “long funding operating lease” means a long funding operating lease for the purposes of Part 2 of CAA 2001 (see section 70YI(1) of that Act), and

• “lease”, in relation to an asset, has the same meaning as in Chapter 3 of Part 19 (see section 868).

Regional development grantsU.K.

289Reduction of expenditure by reference to regional development grantU.K.

(1)This section applies if conditions A and B are met.

(2)Condition A is that a person has incurred expenditure (by way of purchase, rent or otherwise) on the acquisition of an asset in a transaction to which paragraph 2 of Schedule 4 to OTA 1975 applies (transactions between connected persons or otherwise than at arm's length).

(3)Condition B is that the expenditure incurred by the other person mentioned in that paragraph in acquiring, bringing into existence or enhancing the value of the asset as mentioned in that paragraph—

(a)has been or is to be met by a regional development grant, and

(b)falls (in whole or in part) to be taken into account under Part 2 or 6 of CAA 2001 (capital allowances relating to plant and machinery or research and development).

(4)Subsection (5) applies for the purposes of the charge to corporation tax on the income arising from the activities of the person mentioned in subsection (2) which are treated by section 279 as a separate trade for those purposes.

(5)The expenditure mentioned in subsection (2) is to be reduced by the amount of the regional development grant mentioned in subsection (3).

(6)In this section “regional development grant” means a grant falling within section 534(1) of CAA 2001 (Northern Ireland regional development grant).

290Adjustment as a result of regional development grantU.K.

(1)This section applies if conditions A, B and C are met.

(2)Condition A is that expenditure incurred by a company in relation to an asset in an accounting period (“the initial period”) has been or is to be met by a regional development grant.

(3)Condition B is that, despite the provisions of section 534(2) and (3) of CAA 2001 (Northern Ireland regional development grants) and section 289 of this Act, in determining that company's liability to corporation tax for the initial period, the whole or some part of that expenditure falls to be taken into account under Part 2 or 6 of CAA 2001.

(4)Condition C is that—

(a)expenditure on the asset becomes allowable under section 3 or 4 of OTA 1975 in an accounting period (an “adjustment period”) subsequent to the initial period, or

(b)the proportion of any such expenditure which is allowable in an adjustment period is different as compared with the initial period.

(5)There is to be redetermined for the purposes of subsections (7) and (8) the amount of the expenditure mentioned in subsection (2) which would have been taken into account as mentioned in subsection (3) if the circumstances mentioned in subsection (4) had existed in the initial period.

(6)According to whether the amount as so redetermined is greater or less than the amount actually taken into account as mentioned in subsection (3), the difference is referred to in subsections (7) and (8) as the increase or the reduction in the allowance.

(7)If there is an increase in the allowance, an amount of capital expenditure equal to the increase is to be treated, for the purposes of Part 2 or 6 of CAA 2001, as having been incurred by the company concerned in the adjustment period on an extension of, or addition to, the asset mentioned in subsection (2).

(8)If there is a reduction in the allowance, the company concerned is to be treated, for the purpose of determining its liability to corporation tax, as having received in the adjustment period, as income of the trade in connection with which the expenditure mentioned in subsection (2) was incurred, a sum equal to the amount of the reduction in the allowance.

(9)In this section “regional development grant” has the meaning given by section 289(6).

Tariff receipts etcU.K.

291Tariff receipts etcU.K.

(1)Subsection (5) applies to a sum which meets conditions A, B and C.

(2)Condition A is that the sum constitutes a tariff receipt or tax-exempt tariffing receipt of a person who is a participator in an oil field.

(3)Condition B is that the sum constitutes consideration in the nature of income rather than capital.

(4)Condition C is that the sum would not, but for subsection (5), be treated as mentioned in that subsection.

(5)The sum is to be treated as a receipt of the separate trade mentioned in section 279.

(6)So far as they would not otherwise be so treated, the activities—

(a)of a participator in an oil field, or

(b)of a person connected with the participator,

in making available an asset in a way which gives rise to tariff receipts or tax-exempt tariffing receipts of the participator are to be treated for the purposes of this Part as oil extraction activities.

(7)In determining for the purposes of subsection (2) whether a sum constitutes a tariff receipt or tax-exempt tariffing receipt of a person who is a participator, no account may be taken of any sum which—

(a)is in fact received or receivable by a person connected with the participator, and

(b)constitutes a tariff receipt or tax-exempt tariffing receipt of the participator.

But in relation to the person by whom such a sum is actually received, subsection (2) has effect as if the person were a participator and as if condition A were met.

(8)References in this section to a person connected with a participator include a person with whom the person is associated, within the meaning of paragraph 11 of Schedule 2 to the Oil Taxation Act 1983, but section 1176(1) of this Act (meaning of “connected” persons) does not apply for the purposes of this section.

(9)In this section—

• “tax-exempt tariffing receipt” has the meaning given by section 6A(2) of the Oil Taxation Act 1983, and

• “tariff receipt” has the same meaning as in that Act.

Abandonment guaranteesU.K.

292[F17Expenditure on abandonment guarantees]U.K.

(1)Subsection (2) applies if, as a result of section 3(1)(hh) of OTA 1975 (obtaining abandonment guarantee), expenditure incurred by a participator in an oil field is allowable (in whole or in part) for petroleum revenue tax purposes under section 3 of that Act.

[F18(1A)Subsection (2) also applies if expenditure incurred by a participator in an oil field would be so allowable as a result of section 3(1)(hh) of that Act but for the fact that the oil field is a non-taxable oil field within the meaning of Part 3 of FA 1993 (see section 185 of that Act).]

(2)So far as [F19the expenditure mentioned in subsection (1) or (1A) is or would be so allowable] , it is to be allowed as a deduction in calculating the participator's ring fence income.

F20(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F20(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F21(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)In this Chapter—

• “abandonment guarantee” has the same meaning as it has for the purposes of [F22section 3 of OTA 1975] (see section 104 of [F23FA 1991 ] ), and

• “the guarantor” and “the relevant participator” have the same meaning as in section 104 of that Act.

F24293Relief for reimbursement expenditure under abandonment guaranteesU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F25294Payment under abandonment guarantee not immediately appliedU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F25295Amounts excluded from section 293(1)U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Abandonment expenditureU.K.

296[F26Introduction to section 297]U.K.

(1)[F27Section 297 applies ] if—

(a)paragraph 2A of Schedule 5 to OTA 1975 applies, F28..., and

(b)the default payment falls (in whole or part) to be attributed to the contributing participator under paragraph 2A(2) of that Schedule [F29, or would fall to be so attributed if a claim under paragraph 2A(2) of that Schedule were made] .

[F30(1A)The condition in subsection (1)(b) is to be treated as met for the purposes of this section if it would be met but for the fact that the contributing participator is (or was) a participator in an oil field that is a non-taxable oil field within the meaning of Part 3 of FA 1993 (see section 185 of that Act).]

(2)In section 297 “the additional abandonment expenditure” means the amount which is [F31or would be ] attributed to the contributing participator as mentioned in subsection (1)(b) (whether representing the whole or only part of the default payment).

(3)In this Chapter “default payment”, “the defaulter” and “contributing participator” have the same meaning as in paragraph 2A of Schedule 5 to OTA 1975.

297Relief for expenditure incurred by a participator in meeting defaulter's abandonment expenditureU.K.

(1)Relief by way of capital allowance, or a deduction in calculating ring fence income, is to be available to the contributing participator in respect of the additional abandonment expenditure if any such relief or deduction would have been available to the defaulter if—

(a)the defaulter had incurred the additional abandonment expenditure, and

(b)at the time that that expenditure was incurred the defaulter continued to carry on a ring fence trade.

(2)The basis of qualification for or entitlement to any relief or deduction which is available to the contributing participator under this section is to be determined on the assumption that the conditions in subsection (1)(a) and (b) are met.

(3)But, subject to subsection (2), any such relief or deduction is to be available in the same way as if the additional abandonment expenditure had been incurred by the contributing participator for the purposes of the ring fence trade carried on by the contributing participator.

F32298Reimbursement by defaulter in respect of certain abandonment expenditureU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F33Receipts arising from decommissioningU.K.

298AReceipts arising from decommissioningU.K.

(1)This section applies if—

(a)a company that is or has been carrying on a ring fence trade (“the defaulter”) has defaulted on a liability under—

(i)a relevant agreement, or

(ii)an abandonment programme,

to make a payment towards decommissioning expenditure,

(b)another company that is or has been carrying on a ring fence trade (“the contributing company”) pays an amount (“the relevant contribution”) in or towards meeting the whole or part of the default, and

(c)the amount of the relevant contribution is less than the sum of the amounts within subsection (2).

(2)The amounts within this subsection are—

(a)any payments made (directly or indirectly) to the contributing company by the guarantor under an abandonment guarantee as a result of the defaulter defaulting on the liability,

(b)any reimbursement payments, and

(c)any relief from tax which the contributing company obtains in respect of the relevant contribution.

(3)The difference between—

(a)the sum of the amounts within subsection (2), and

(b)the relevant contribution,

(“the relevant difference”) is to be treated as a receipt (in the nature of income) of the contributing company's ring fence trade for the relevant accounting period (see subsection (4)).

(4)“The relevant accounting period” means the accounting period that includes the day on which the Secretary of State certifies that the relevant abandonment programme has been satisfactorily completed (“the certification date”).

This is subject to subsections (5) and (6).

(5)If the contributing company has ceased to carry on the ring fence trade before the certification date, “the relevant accounting period” is the last accounting period of the trade.

(6)If the contributing company has ceased to be within the charge to corporation tax in respect of the ring fence trade before the certification date, “the relevant accounting period” is the accounting period during or at the end of which the contributing company ceased to be within the charge to corporation tax in respect of the trade.

(7)The relevant difference is to be determined—

(a)in a case where subsection (5) or (6) applies, at the end of the calendar year in which the certification date falls, and

(b)in any other case, at the end of the relevant accounting period.

(8)In a case where subsection (5) or (6) applies, any corporation tax chargeable for the relevant accounting period by virtue of this section is due and payable as if it were corporation tax for an accounting period beginning with the certification date.

(9)Any additional assessment to corporation tax required in order to take account of a receipt arising under this section may be made at any time not later than 4 years after the end of the calendar year in which the certification date falls.

(10)In this section—

• “abandonment programme” means an abandonment programme approved under Part 4 of the Petroleum Act 1998 (including such a programme as revised),

• “decommissioning expenditure” has the meaning given by section 330C,

• “reimbursement payment” means any payment made to the contributing company by the defaulter in reimbursing the contributing company in respect of, or otherwise making good to the contributing company, the whole or any part of the relevant contribution,

• “the relevant abandonment programme” means the abandonment programme in respect of which the decommissioning expenditure mentioned in subsection (1)(a) was incurred, and

• “relevant agreement” has the meaning given by section 104(5)(a) of FA 1991.]

Deduction of PRT in calculating income for corporation tax purposesU.K.

299Deduction of PRT in calculating income for corporation tax purposesU.K.

(1)This section applies if a participator in an oil field has paid any petroleum revenue tax with which the participator was chargeable for a chargeable period.

(2)In calculating for corporation tax the amount of the participator's income arising from oil extraction activities or oil rights in the relevant accounting period, there is to be deducted an amount equal to that petroleum revenue tax.

(3)There are to be made all such adjustments of assessments to corporation tax as are required in order to give effect to subsection (2).

(4)In this section “the relevant accounting period”, in relation to any petroleum revenue tax paid by a company, means—

(a)the accounting period of the company in or at the end of which the chargeable period for which that tax was charged ends, or

(b)if that chargeable period ends after the accounting period of the company in or at the end of which the company—

(i)ceases to carry on the trade giving rise to the income referred to above, or

(ii)ceases to be within the charge to corporation tax in respect of the trade,

that accounting period.

300Effect of repayment of PRT: general ruleU.K.

(1)This section applies if some or all of the petroleum revenue tax in respect of which a deduction has been made under section 299(2) is subsequently repaid.

(2)The deduction is to be reduced or extinguished accordingly.

(3)Any additional assessment to corporation tax required in order to give effect to subsection (2) may be made at any time not later than 4 years after the end of the calendar year in which the petroleum revenue tax was repaid.

(4)This section is subject to section 301.

301Effect of repayment of PRT: special ruleU.K.

(1)This section applies if, in a case where paragraph 17 of Schedule 2 to OTA 1975 applies, an amount of petroleum revenue tax in respect of which a deduction has been made under section 299(2) is repaid as a result of an assessment under that Schedule or an amendment of such an assessment.

(2)As regards so much of that repayment as constitutes the appropriate repayment—

(a)section 300 does not apply, and

(b)the following provisions apply in relation to the company which is entitled to the repayment.

(3)In calculating for corporation tax the amount of the company's income arising in the relevant accounting period from oil extraction activities or oil rights there is to be added an amount equal to the appropriate repayment (but this is subject to subsections (4) and (5)).

(4)Subsection (5) applies if—

(a)two or more carried back losses give rise to the appropriate repayment,

(b)the operative chargeable period in relation to each of the carried back losses is not the same, and

(c)if this section were applied separately in relation to each of the carried back losses there would be more than one relevant accounting period.

(5)The appropriate repayment is to be treated as apportioned between each of the relevant accounting periods mentioned in subsection (4)(c) in such a way as to secure that the amount added as a result of subsection (3) in relation to each of those relevant accounting periods is what it would have been if—

(a)relief for each of the carried back losses for which there is a different operative chargeable period had been given by a separate assessment or amendment of an assessment under Schedule 2 to OTA 1975, and

(b)relief for a carried back loss accruing in an earlier chargeable period had been so given before relief for a carried back loss accruing in a later chargeable period.

(6)Any additional assessment to corporation tax required in order to give effect to the addition of an amount as a result of subsection (3) may be made at any time not later than 4 years after the end of the calendar year in which the repayment of petroleum revenue tax comprising the appropriate repayment is made.

(7)In this section—

• “allowable loss” has the same meaning as in Part 1 of OTA 1975 (see section 2 of that Act),

• “the appropriate repayment” has the meaning given by paragraph 17(2) of Schedule 2 to that Act,

• “carried back loss”, in relation to the appropriate repayment, means an allowable loss—

  (a)

  which falls within paragraph 17(1)(a) of Schedule 2 to OTA 1975, and

  (b)

  which (alone or together with one or more other carried back losses) gives rise to the appropriate repayment,

• “the operative chargeable period”, in relation to a carried back loss, means the chargeable period in which the loss accrued, and

• “the relevant accounting period”, in relation to the company which is entitled to the appropriate repayment, means—

  (a)

  the accounting period in or at the end of which the operative chargeable period ends,

  (b)

  if the company ceases to carry on its ring fence trade before the end of the operative chargeable period, the last accounting period of that trade, or

  (c)

  if the company ceases to be within the charge to corporation tax in respect of that trade before the end of the operative chargeable period, the accounting period during or at the end of which the company ceased to be within the charge to corporation tax in respect of that trade.

Interest on repayment of PRT or APRTU.K.

302Interest on repayment of PRT or APRTU.K.

(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.

(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.

ReliefU.K.

303Management expensesU.K.

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.

304LossesU.K.

(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.

(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.

(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 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.

305Group reliefU.K.

(1)On a claim for group relief made by a claimant company in relation to a 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.

(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 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.

(4)In this section “claimant company” and “surrendering company” are to be read in accordance with Part 5 (group relief) (see section 188).

306Capital allowancesU.K.

(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 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

(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 5U.K.Ring fence expenditure supplement

IntroductionU.K.

307Overview of ChapterU.K.

(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—

(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 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 that trade.

(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 (of [F3410]) on the number of accounting periods in respect of which a company may claim supplement.

(6)In determining the amount of supplement allowable, reductions fall to be 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 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.

Application and interpretationU.K.

308Qualifying companiesU.K.

(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 trade.

(2)In this Chapter such a company is referred to as a “qualifying company”.

309Accounting periodsU.K.

(1)In this Chapter, in the case of a qualifying company—

• “the commencement period” means the accounting period in which the 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

• “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 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.

(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

(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 [F35Chapter—

(a)in relation to straddling periods (see sections 311, 324 and 327(4) to (7)), and

(b)in relation to accounting periods which begin before, but end on or after, 5 December 2013 (see sections 311(1C), 318A and 328A).]

310The relevant percentageU.K.

(1)For the purposes of this Chapter, the relevant percentage for an accounting period is [F3610%].

(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.

311Limit on number [F37etc] of accounting periods for which supplement may be claimedU.K.

(1)A company may claim supplement under this Chapter in respect of no more than [F3810] accounting periods.

[F39(1A)In this Chapter—

• “the initial 6 periods” means the first 6 accounting periods (in chronological order) for which the company claims supplement under this Chapter;

• “the additional 4 periods” means the 4 accounting periods after the initial 6 periods for which the company claims supplement under this Chapter.

(1B)None of the additional 4 periods may be accounting periods beginning before 5 December 2013.

(1C)But, where—

(a)a company has an accounting period which begins before 5 December 2013 and ends on or after that date, and

(b)that accounting period falls after the initial 6 accounting periods,

so much of that accounting period as falls before 5 December 2013 and so much of it as falls on or after that date are treated as separate accounting periods for the purposes of this Chapter.]

(2)The accounting periods in respect of which claims are made need not be consecutive.

(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 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 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.

312Qualifying pre-commencement expenditureU.K.

(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.

(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—

(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 “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 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.

F40(8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F40(9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

313Unrelieved group ring fence profits for accounting periodsU.K.

(1)There is an amount of unrelieved group ring fence profits for an accounting period of a qualifying company (“company Q”) if—

(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 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—

(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.

(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 fence profits for its accounting period that is attributable, on an 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).

(6)This section applies for the purposes of this Chapter.

314Taxable ring fence profits for an accounting periodU.K.

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 claimed under Part 5 (group relief).

Pre-commencement supplementU.K.

315Supplement in respect of a pre-commencement accounting periodU.K.

(1)If—

(a)a qualifying company incurs qualifying pre-commencement 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-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 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.

(5)Sections 316 to 319 have effect for the purpose of determining the reference amount for a pre-commencement period.

316The mixed pool of qualifying pre-commencement expenditure and supplement previously allowedU.K.

(1)For the purpose of determining the amount of any pre-commencement 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

(c)pre-commencement supplement.

(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 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—

• 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

  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 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-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 before 1 January 2006.

[F41(6)This section is subject to section 318A (adjustment of pool to remove pre-2013 expenditure after the initial 6 periods).]

317Reduction in respect of disposal receipts under CAA 2001U.K.

(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,

(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 (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—

(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 (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.

[F42(4)This section is subject to section 318A(5) (exclusion of deductible amounts in respect of pre-2013 expenditure when determining pre-commencement supplement for additional 4 periods).]

318Reduction in respect of unrelieved group ring fence profitsU.K.

(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—

(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.

[F43318AAdjustment of pool to remove pre-2013 expenditure after the initial 6 periodsU.K.

(1)This section applies for the purposes of determining the amount of any pre-commencement supplement on any claim made by a company for supplement under this Chapter in respect of an accounting period which is one of the additional 4 periods.

(2)The pool which (under section 316) the company is to be taken to have had, at all times in the pre-commencement periods of the company, is to be taken to have been reduced at the time specified in subsection (4).

(3)The amount of the reduction is the sum of—

(a)the relevant amount (if any) which the company carries forward under Schedule 19B to ICTA,

(b)the total amount of qualifying pre-commencement expenditure allocated to the pool for pre-commencement periods beginning before 5 December 2013, and

(c)the total amount of the company's pre-commencement supplement allocated to the pool for pre-commencement periods beginning before that date.

(4)The time is—

(a)immediately after the last of the initial 6 periods, or

(b)if later, 5 December 2013.

(5)Subsection (3) of section 317 (reduction in respect of disposal receipts under CAA 2001) has effect as if the reference in paragraph (a) of that subsection to “all such events” did not include events occurring in relation to an asset representing expenditure incurred before 5 December 2013.

(6)Where a company has a pre-commencement period (“the straddling 2013 period”) which begins before 5 December 2013 and ends on or after that date, for the purposes of making a reduction under this section—

(a)so much of the straddling 2013 period as falls before 5 December 2013 (“the pre-2013 period”), and

(b)so much of that period as falls on or after that date (“the post-2013 period”),

are to be treated as separate pre-commencement periods.

(7)Accordingly, any amount of qualifying pre-commencement expenditure, and any amount of the company's pre-commencement supplement, allocated to the pool for the straddling 2013 period is to be—

(a)apportioned between the pre-2013 period and the post-2013 period in proportion to the number of days in each, and

(b)treated as allocated to the pool in question for the period in question (rather than the straddling 2013 period).

(8)If the basis of the apportionment in subsection (7) would work unjustly or unreasonably in the company's case, the company may elect for the apportionment to be made on another basis that is just and reasonable and specified in the election.]

319The reference amount for a pre-commencement periodU.K.

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 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.

320Claims for pre-commencement supplementU.K.

(1)Any claim for pre-commencement supplement in respect of a pre-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.

Post-commencement supplementU.K.

321Supplement in respect of a post-commencement periodU.K.

(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—

(a)that period, or

(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 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.

(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.

322Amount of post-commencement supplement for a post-commencement periodU.K.

(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 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 amount for a post-commencement period.

323Ring fence lossesU.K.

(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 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.

(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 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.

(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.

324Special rule for straddling periodsU.K.

(1)This section applies if the period of the loss is the deemed accounting period 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

  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

  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, 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. 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 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. 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.

(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,

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 provisions.

325The pool of ring fence losses and the pool of non-qualifying Schedule 19B lossesU.K.

(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-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.

(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.

(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 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 January 2006.

326The ring fence poolU.K.

(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 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—

(a)the amount of a ring fence loss is added to the pool in the period of the loss, and

(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 [F44sections 327 and 328].

(4)If a reduction in the amount in the ring fence pool falls to be made [F45under section 327 or 328] 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

(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 the purposes of Part 4 of Schedule 19B to ICTA immediately before 1 January 2006.

[F46(6)This section is subject to section 328A (adjustment of pool to remove pre-2013 losses after the initial 6 periods).]

327Reductions in respect of utilised ring fence lossesU.K.

(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-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).

(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 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).

[F47(3A)Subsection (3) is subject to section 328A(11).]

(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 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 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,

disregarding section 309(3).

328Reductions in respect of unrelieved group ring fence profitsU.K.

(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.

(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.

(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-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 with section 327.

[F48328AAdjustment of pool to remove pre-2013 losses after the initial 6 periodsU.K.

(1)This section applies for the purposes of determining the amount of any post-commencement supplement on any claim in respect of any of the additional 4 periods.

(2)The ring fence pool is to be taken to have been reduced at the time specified in subsection (6).

(3)The amount of the reduction is the amount of the total pre-2013 pool reduced (but not below nil) by the amount of the total pre-2013 reduction.

(4)“The amount of the total pre-2013 pool” means the sum of—

(a)the carried forward qualifying Schedule 19B amount (within the meaning of section 326(5)) which is in the pool at the time specified in subsection (6) (if any),

(b)the total amount of the company's ring fence losses added to the pool in post-commencement periods beginning before 5 December 2013,

(c)if the commencement period begins on or after 5 December 2013, so much of any ring fence loss added to the pool in that period as does not exceed the sum of—

(i)any pre-commencement expenditure added to the pool in a pre-commencement period ending before 5 December 2013, and

(ii)any pre-commencement supplement allowed in respect of such a pre-commencement period, and

(d)the total amount of the company's post-commencement supplement added to the pool in post-commencement periods beginning before that date.

(5)“The amount of the total pre-2013 reduction” means the total amount of the reductions in the ring fence pool falling to be made under section 327 or 328 in post-commencement periods beginning before the time specified in subsection (6).

(6)The time is—

(a)immediately after the last of the 6 initial periods, or

(b)if later, 5 December 2013.

(7)The amount (if any) in the non-qualifying pool under section 325(3) is reduced to nil (and so ceases to exist under section 325(4)).

(8)Section 318A(6) (“the straddling 2013 period”) applies for the purposes of making a reduction under this section as it applies for the purposes of making a reduction under section 318A.

(9)Accordingly—

(a)any ring fence loss of the company added to the pool in the straddling 2013 period is to be apportioned between the pre-2013 period and the post-2013 period in proportion to the number of days in each and treated as allocated to the pool for the period in question;

(b)any amount of the company's post-commencement supplement allocated to the pool for the straddling period is to be apportioned between the pre-2013 period and the post-2013 period in proportion to the number of days in each and treated as allocated to the pool for the period in question;

(c)the total amount of reductions in the ring fence pool falling to be made in the straddling period is apportioned between the pre-2013 period and the post-2013 period in proportion to the number of days in each and treated as a reduction falling to be made in the period in question.

(10)If the basis of the apportionment in subsection (9)(a), (b) or (c) would work unjustly or unreasonably in the company's case, the company may elect for the apportionment to be made on another basis that is just and reasonable and specified in the election.

(11)Once a reduction in the pool has been made under this section—

(a)nothing in section 327 applies to require a reduction in the pool in respect of the use under section 45 of a loss if and to the extent that the loss is represented by the reduction made under this section, and

(b)if and to the extent that losses are represented by the reduction they are to be used under section 45 to reduce any profits of a post-commencement period before ring fence losses of the company the use of which would trigger a reduction of the ring fence pool under section 327.]

329The reference amount for a post-commencement periodU.K.

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.

F49CHAPTER 5AU.K.Extended ring fence expenditure supplement for onshore activities

IntroductionU.K.

329AOverview of ChapterU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Application and interpretationU.K.

329BQualifying companiesU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329COnshore and offshore oil-related activitiesU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329DAccounting periods and straddling periodsU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329EThe relevant percentageU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329FRestrictions on accounting periods for which additional supplement may be claimedU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329GQualifying pre-commencement onshore expenditureU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329HUnrelieved group ring fence profitsU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pre-commencement additional supplementU.K.

329IAdditional supplement in respect of a pre-commencement accounting periodU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329JThe mixed pool of qualifying pre-commencement onshore expenditure and supplement previously allowedU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329KReduction in respect of disposal receipts under CAA 2001U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329LReduction in respect of unrelieved group ring fence profitsU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329MThe reference amount for a pre-commencement periodU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Post-commencement additional supplementU.K.

329NSupplement in respect of post-commencement periodU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329OAmount of post-commencement additional supplement for a post-commencement periodU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329POnshore ring fence lossesU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329QThe onshore ring fence poolU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329RReductions in respect of utilised onshore ring fence lossesU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329SReductions in respect of unrelieved group ring fence profitsU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

329TThe reference amount for a post-commencement periodU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 6U.K.Supplementary charge in respect of ring fence trades

330Supplementary charge in respect of ring fence tradesU.K.

(1)If a company carries on a ring fence trade in an accounting period, a sum equal to [F5010%] of its adjusted ring fence profits for that period is to be charged on the 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 [F51company's ring fence profits] chargeable to corporation tax.

[F52See also sections 330A and 330B (which provide for the amount of adjusted ring fence profits to be further adjusted where decommissioning expenditure has been taken into account).]

(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 to the company in accordance with section 305(1), the amount of that relief or part.

(4)See also section 331 (meaning of financing costs etc).

[F53(5)This Chapter is subject to—

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

(b)Chapter 8 (reduction of supplementary charge: onshore allowance), and

(c)Chapter 9 (reduction of supplementary charge: cluster area allowance).]

[F54330ZAOrdering of allowancesU.K.

(1)In this section “relieving Chapter” means any of the following—

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

(b)Chapter 8 (reduction of supplementary charge: onshore allowance);

(c)Chapter 9 (reduction of supplementary charge: cluster area allowance).

(2)Where a company has allowances under more than one relieving Chapter available for reducing the adjusted ring fence profits that are to be chargeable under section 330(1) for an accounting period, the company may choose the order in which the relieving Chapters in question are to be applied.

(3)In any relieving Chapter, “adjusted ring fence profits”, in relation to a company and an accounting period, means the adjusted ring fence profits which would (ignoring all relieving Chapters except those which the company chooses to apply before that Chapter) be taken into account in calculating the supplementary charge on the company under section 330(1) for the accounting period.]

[F55330ADecommissioning expenditure taken into account in calculating ring fence profitsU.K.

(1)This section applies where—

(a)any decommissioning expenditure is taken into account in calculating the amount mentioned in paragraph (a) of subsection (3) of section 330 or the amount mentioned in paragraph (b) of that subsection, and

(b)if that expenditure were not so taken into account, the amount of the adjusted ring fence profits of the company for the accounting period would be greater than nil.

(2)In calculating for the purposes of section 330(1) the amount of the adjusted ring fence profits of the company for the accounting period, there is to be added an amount equal to the appropriate fraction of the used-up amount of that expenditure.

(3)For the purposes of this section—

• “the appropriate fraction” is

  

  where SC is the percentage specified in section 330(1) for the accounting period, and

• “the used-up amount”, in relation to any expenditure, is the difference between—

  (a)

  the adjusted ring fence profits of the company for the accounting period determined in the absence of this section (which may be nil), and

  (b)

  what the adjusted ring fence profits of the company for that accounting period would be if that expenditure were not taken into account as mentioned in subsection (1).

(4)In determining for the purposes of this section whether, and to what extent, any losses which have been taken into account as mentioned in subsection (1) are attributable to decommissioning expenditure—

(a)assume that any amounts of any other expenditure which could be taken into account in calculating those losses are taken into account before any amounts of decommissioning expenditure, and

(b)where any losses have been surrendered in accordance with Part 5, the company must specify, in accordance with a basis determined jointly by the company, the surrendering company (if different) and any other claimant company, whether any of those losses is attributable to decommissioning expenditure.

(5)But if paragraph (a) of subsection (4) would work unfavourably in the company's case, the company may elect for that paragraph not to apply in relation to it and for any amounts of expenditure which could be taken into account in calculating those losses instead to be taken into account in the order specified in the election.

(6)In determining for the purposes of this section the used-up amount of decommissioning expenditure, assume that any other amounts that could be deducted in calculating the adjusted ring fence profits of the company for the accounting period have already been so deducted.

(7)But if subsection (6) would work unfavourably in the company's case, the company may elect for that subsection not to apply in relation to it and for any amounts that could be deducted in calculating those adjusted ring fence profits instead to be deducted in the order specified in the election.

(8)For the purposes of this section, any deduction made under section 330B is to be disregarded.

(9)This section does not apply in relation to any accounting period for which the percentage specified in section 330(1) is less than or equal to 20% (including any accounting period beginning before 24 March 2011 and ending on or after that date).

(10)In this section—

• “claimant company” and “surrendering company” are to be read in accordance with Part 5 (see section 188), and

• “decommissioning expenditure” has the meaning given by section 330C.]

[F55330BDecommissioning expenditure taken into account for PRT purposesU.K.

(1)This section applies where—

(a)any decommissioning expenditure is taken into account in calculating the assessable profit accruing to a participator in any chargeable period from an oil field, F56...

(b)if that expenditure were not so taken into account, the amount of petroleum revenue tax with which the participator would be chargeable in respect of the field for the chargeable period would be greater than nil.

[F57, and

(c)an amount equal to the appropriate fraction of the used-up amount of that expenditure is added under section 330A(2) in calculating the participator's adjusted ring fence profits for an accounting period.]

[F58(2)In calculating for the purposes of section 330(1) the amount of the participator's adjusted ring fence profits for the accounting period, there is to be deducted the amount given by—

(3)For the purposes of this section—

• [F59“the relevant percentage of the decommissioning expenditure” is the percentage of that expenditure that is the used-up amount referred to in subsection (1)(c),]

• “the appropriate fraction” is

  

  where SC is the percentage specified in section 330(1) for the F60... accounting period, and

• “the PRT difference” is the difference between—

  (a)

  the amount of petroleum revenue tax with which the participator is chargeable for the chargeable period (which may be nil), and

  (b)

  the amount of petroleum revenue tax with which the participator would be chargeable for that chargeable period if the decommissioning expenditure were not taken into account as mentioned in [F61subsection (1)(a) ] .

(4)In determining for the purposes of this section whether, and to what extent, any allowable losses which have been taken into account as mentioned in [F62subsection (1)(a)] are attributable to decommissioning expenditure, assume that any amounts of any other expenditure which could be taken into account in calculating those losses are taken into account before any amounts of decommissioning expenditure.

(5)But if subsection (4) would work unfavourably in the participator's case, the participator may elect for that subsection not to apply in relation to it and for any amounts of expenditure which could be taken into account in calculating those losses instead to be taken into account in the order specified in the election.

(6)This section does not apply in relation to any accounting period for which the percentage specified in section 330(1) is less than or equal to 20% (including any accounting period beginning before 24 March 2011 and ending on or after that date).

(7)In this section—

• “assessable profit” and “allowable loss” have the same meaning as in Part 1 of OTA 1975 (see section 2 of that Act),

• “decommissioning expenditure” has the meaning given by section 330C, and

• F63...]

• [F64“the used-up amount”, in relation to any expenditure, has the same meaning as in section 330A (see subsection (3) of that section).]

[F55330CMeaning of “decommissioning expenditure”U.K.

(1)In sections 330A and 330B “decommissioning expenditure” means expenditure incurred in connection with—

(a)demolishing any plant or machinery,

(b)preserving any plant or machinery pending its reuse or demolition,

(c)preparing any plant or machinery for reuse,

(d)arranging for the reuse of any plant or machinery, or

(e)the restoration of any land.

(2)It is immaterial for the purposes of subsection (1)(b) whether the plant or machinery is reused, is demolished or is partly reused and partly demolished.

(3)It is immaterial for the purposes of subsection (1)(c) and (d) whether the plant or machinery is in fact reused.

(4)In subsection (1)(e) “restoration” includes landscaping.

(5)The Treasury may by order amend this section.

(6)An order under subsection (5) may include transitional provision and savings.]

331Meaning of “financing costs” etcU.K.

(1)This section applies for the purposes of section 330.

(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 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,

(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 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.

(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 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 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.

(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—

(i)fall (or would fall) to be treated, in the accounts of the lessee or a person connected with the lessee, as a finance lease or a loan, or

(ii)are comprised in arrangements which fall (or would fall) to be so treated.

(7)For the purposes of applying subsection (6)(b), the lessee and any person connected with the lessee are to be treated as being companies which are incorporated in a part of the United Kingdom.

(8)Section 1176(1) (meaning of “connected” persons) does not apply for the purposes of this section.

(9)In this section—

• “accounts”, in relation to a company, includes accounts which—

  (a)

  relate to two or more companies of which that company is one, and

  (b)

  are drawn up in accordance with generally accepted accounting practice,

• “debtor relationship” has the meaning given by section 302(6) of CTA 2009,

• “exchange gains” and “exchange losses” are to be read in accordance with section 475 of CTA 2009, and

• “long funding operating lease” means a long funding operating lease for the purposes of Part 2 of CAA 2001 (see section 70YI(1) of that Act).

332Assessment, recovery and postponement of supplementary chargeU.K.

(1)The provisions of section 330(1) relating to the charging of a sum as if it were an amount of corporation tax are to be taken as applying all enactments applying generally to corporation tax.

(2)But this is subject to—

(a)the provisions of the Taxes Acts,

(b)any necessary modifications, and

(c)subsection (5).

(3)The enactments mentioned in subsection (1) include—

(a)those relating to returns of information and the supply of accounts, statements and reports,

(b)those relating to the assessing, collecting and receiving of corporation tax,

(c)those conferring or regulating a right of appeal, and

(d)those concerning administration, penalties, interest on unpaid tax and priority of tax in cases of insolvency under the law of any part of the United Kingdom.

(4)Accordingly TMA 1970 is to have effect as if any reference to corporation tax included a sum chargeable under section 330(1) as if it were an amount of corporation tax (but this does not limit subsections (1) to (3)).

(5)In the Corporation Tax (Treatment of Unrelieved Surplus Advance Corporation Tax) Regulations 1999 (S.I. 1999/358) or any further regulations made under section 32 of FA 1998 (unrelieved surplus advance corporation tax)—

(a)references to corporation tax do not include a sum chargeable on a company under section 330(1) as if it were corporation tax, and

(b)references to profits charged to corporation tax do not include adjusted ring fence profits, within the meaning of section 330.

(6)In this section “the Taxes Acts” has the same meaning as in TMA 1970 (see section 118(1) of that Act).

[F65CHAPTER 6AU.K.Supplementary charge: investment allowance

IntroductionU.K.

332AOverviewU.K.

(1)This Chapter sets out how relief for certain expenditure incurred in relation to a qualifying oil field is given by way of reduction of a company's adjusted ring fence profits.

(2)The Chapter includes provision about—

(a)the oil fields that are qualifying oil fields (section 332B);

(b)the expenditure that is investment expenditure (section 332BA);

(c)the generation of allowance by the incurring of relievable investment expenditure in relation to a qualifying oil field (sections 332C and 332CA);

(d)restrictions on the expenditure that is relievable (sections 332D to 332DC);

(e)how allowance is activated by relevant income from the same oil field (sections 332F to 332FC and 332H to 332HB) in order to be available for reducing adjusted ring fence profits (sections 332E and 332EA);

(f)the division of an accounting period into reference periods where a company has different shares of the equity in a qualifying oil field at different times in the period (section 332G);

(g)the transfer of allowance where shares of the equity in a qualifying oil field are disposed of (sections 332I to 332IB).

(3)For provision about the conversion of field allowance under Chapter 7 (as it had effect before 1 April 2015) into allowance under this Chapter, see paragraphs 7 and 8 of Schedule 12 to FA 2015.

“Qualifying oil field” and “investment expenditure”U.K.

332BMeaning of “qualifying oil field”U.K.

In this Chapter “qualifying oil field” means an oil field that is not wholly or partly included in a cluster area (see section 356JD).

332BAMeaning of “investment expenditure”U.K.

(1)For the purposes of this Chapter, expenditure incurred by a company is “investment” expenditure only if it is—

(a)capital expenditure, or

(b)expenditure of such other description as may be prescribed by the Treasury by regulations.

(2)Regulations under subsection (1)(b) may provide for any of the provisions of the regulations to have effect in relation to expenditure incurred before the regulations are made.

(3)But subsection (2) does not apply to any provision of amending or revoking regulations which has the effect that expenditure of any description ceases to be investment expenditure.

(4)Regulations under subsection (1)(b) may—

(a)make different provision for different purposes;

(b)make transitional provision and savings.

Investment allowanceU.K.

332CGeneration of investment allowanceU.K.

(1)Subsection (2) applies where a company—

(a)is a participator in a qualifying oil field, and

(b)incurs any relievable investment expenditure on or after 1 April 2015 in relation to the oil field.

(2)The company is to hold an amount of allowance equal to 62.5% of the amount of the expenditure.

Allowance held under this Chapter is called “investment allowance”.

(3)For the purposes of this section investment expenditure incurred by a company is “relievable” only if, and so far as, it is incurred for the purposes of oil-related activities (see section 274).

(4)Subsections (1) to (3) are subject to—

(a)section 332D (which prevents expenditure on the acquisition of an asset from being relievable in certain circumstances),

(b)section 332DA (which restricts relievable expenditure in relation to an oil field that previously qualified for a field allowance under Chapter 7 as a new oil field),

(c)section 332DB (which restricts relievable expenditure in relation to a project by reference to which an oil field previously qualified for a field allowance under Chapter 7 as an additionally-developed oil field), and

(d)section 332DC (which prevents certain expenditure from being relievable if it relates to an oil field in respect of which onshore allowance may be obtained under Chapter 8).

(5)Investment allowance is said in this Chapter to be “generated” at the time when the investment expenditure is incurred (see section 332K) and is referred to as being generated—

(a)“by” the company concerned;

(b)“in” the qualifying oil field concerned.

(6)Where—

(a)investment expenditure is incurred only partly for the purposes of oil-related activities, or

(b)the oil-related activities for the purposes of which investment expenditure is incurred are carried on only partly in relation to a particular qualifying oil field,

the expenditure is to be attributed to the activities or field concerned on a just and reasonable basis.

332CAExpenditure incurred before field is determinedU.K.

(1)This section applies to expenditure incurred by a company on or after 1 April 2015 for the purposes of oil-related activities if or to the extent that the following conditions are met.

(2)The conditions are—

(a)that the expenditure was in respect of an area,

(b)that, at the time the expenditure was incurred, the area had not been determined under Schedule 1 to OTA 1975 to be an oil field,

(c)that the area is subsequently determined under that Schedule to be an oil field, and

(d)that the company is a licensee in the oil field.

(3)Where this section applies in relation to an amount of expenditure, that amount is treated for the purposes of this Chapter as incurred by the company—

(a)in relation to the oil field, and

(b)at the time when the area is determined under Schedule 1 to OTA 1975 to be an oil field.

Restrictions on relievable expenditureU.K.

332DExpenditure on acquisition of asset: disqualifying conditionsU.K.

(1)Investment expenditure incurred by a company (“the acquiring company”) on the acquisition of an asset [F66(“the acquisition concerned”)] is not relievable expenditure for the purposes of section 332C if either of the disqualifying conditions in this section applies to the asset.

(2)The first disqualifying condition is that investment expenditure incurred before the [F67acquisition concerned,] by the acquiring company or another company, in acquiring, [F68leasing,] bringing into existence or enhancing the value of the asset was relievable under section 332C.

(3)The second disqualifying condition is that—

(a)the asset—

(i)is the whole or part of the equity in a qualifying oil field, or

(ii)is acquired in connection with a transfer to the acquiring company of the whole or part of the equity in a qualifying oil field,

(b)expenditure was incurred before the [F69acquisition concerned,] by the acquiring company or another company, in acquiring, [F70leasing,] bringing into existence or enhancing the value of the asset, and

(c)any of that expenditure—

(i)related to the qualifying oil field, and

(ii)would have been relievable under section 332C if this Chapter had been fully in force and had applied to expenditure incurred at that time.

(4)For the purposes of subsection (3)(a)(ii) it does not matter whether the asset is acquired at the time of the transfer.

[F71(5)In subsection (3)(c) “this Chapter” means the provisions of this Chapter, and of any regulations made under this Chapter, as those provisions have effect at the time when the investment expenditure mentioned in subsection (1) is incurred.

(6)Subsections (7) and (8) apply where investment expenditure mentioned in subsection (1) would, in the absence of this section, be relievable under section 332C by reason of section 332CA (treatment of expenditure incurred before field is determined).

(7)Where this subsection applies—

(a)subsection (2) is to be read as if after “was” there were inserted “ , or has become, ”, and

(b)in determining for the purposes of subsection (2) or (3)(b) whether particular expenditure was incurred “before” the acquisition concerned—

(i)paragraph (b) of section 332CA(3) is to be ignored, and

(ii)accordingly, that expenditure is to be taken (for the purposes of determining whether it was incurred before the acquisition concerned) to have been incurred when it was actually incurred.

(8)Where this subsection applies, in determining whether the second disqualifying condition applies to the asset—

(a)the reference in subsection (3)(a)(i) to a qualifying oil field is to be read as including an area which, at the time of the acquisition concerned, had not been determined to be an oil field but which has subsequently become a qualifying oil field,

(b)the reference in subsection (3)(a)(ii) to a qualifying oil field is to be read as including an area which, at the time of the transfer, had not been determined to be an oil field but which has subsequently become a qualifying oil field,

(c)the reference in subsection (3)(c)(i) to “the qualifying oil field” is to be read accordingly, and

(d)the following sub-paragraph is to be treated as substituted for subsection (3)(c)(ii)—

“(ii)would have been relievable under section 332C if this Chapter had been fully in force and had applied to expenditure incurred at the time when that expenditure was actually incurred and the area in question had been a qualifying oil field at that time.”

(9)In subsection (8)(a) and (b) “determined” means determined under Schedule 1 to OTA 1975.

(10)In this section any reference to expenditure which was incurred by a company in “leasing” an asset is to expenditure incurred by the company under an agreement under which the asset was leased to the company.]

332DARestriction where field qualified for field allowance as new fieldU.K.

(1)This section applies to expenditure which—

(a)is incurred by a company in relation to an oil field that was for the purposes of Chapter 7 a new oil field with an authorisation day before 1 January 2016,

(b)would in the absence of this section be relievable under section 332C, and

(c)is not excluded from this section by—

(i)subsection (5) (material completion),

(ii)subsection (7) (company without share of equity), or

(iii)subsection (8) (additionally-developed oil fields).

In the following provisions of this section, expenditure to which this section applies is referred to as “relevant expenditure”.

(2)Relevant expenditure incurred by a company on any day (“the relevant day”) is not relievable expenditure for the purposes of section 332C except—

(a)if immediately before the relevant day the cumulative total of relevant expenditure attributable to the company's share of the equity in the oil field (see subsection (3)) exceeds the relevant field threshold (see subsection (4)), or

(b)to the extent that, in a case not within paragraph (a), the amount of relevant expenditure incurred on the relevant day, when added to that cumulative total, exceeds the relevant field threshold.

(3)The “cumulative total of relevant expenditure attributable to the company's share of the equity in the oil field” at any time is the total amount of relevant expenditure which is incurred by the company during the period beginning with the start date and ending with that time, but this is subject to sections 332IA(3) and 332IB(4) (which relate to the disposal and acquisition of equity in an oil field).

In this subsection “the start date” means 1 April 2015 or, if later, the authorisation day (within the meaning of Chapter 7) for the field.

(4)The “relevant field threshold” is an amount given by the formula—

(5)This section does not apply to expenditure which is incurred on or after the day determined by the Secretary of State as that on which the relevant project was materially completed.

(6)“The relevant project” means—

(a)in a case that fell within section 351(1)(a), the development described in the field development plan for the field, and

(b)in a case that fell within section 351(1)(b) or (c), the programme of development for the field.

(7)This section does not apply to expenditure incurred by a company if—

(a)at the time when the expenditure is incurred, the company is not a licensee in the oil field, and

(b)the expenditure is incurred in making an asset available in a way which gives rise to tariff receipts (as defined by section 15(3) of the Oil Taxation Act 1983) or tax-exempt tariffing receipts (as defined by section 6A(2) of that Act).

(8)This section does not apply to expenditure to which section 332DB applies.

332DBRestriction where project in additionally-developed field qualified for field allowanceU.K.

(1)This section applies to expenditure which—

(a)is incurred by a company in relation to a project by reference to which an oil field was immediately before 1 April 2015 an additionally-developed oil field for the purposes of Chapter 7,

(b)would in the absence of this section be relievable under section 332C, and

(c)is not excluded from this section by subsection (5) (material completion) or subsection (6) (company without share of project-related reserves).

In the following provisions of this section, expenditure to which this section applies is referred to as “relevant expenditure”.

(2)Relevant expenditure incurred by a company in relation to a project on any day (“the relevant day”) is not relievable expenditure for the purposes of section 332C except—

(a)if immediately before the relevant day the cumulative total of relevant expenditure attributable to the company's share of project-related reserves (see subsection (3)) exceeds the relevant project threshold (see subsection (4)), or

(b)to the extent that, in a case not within paragraph (a), the amount of relevant expenditure incurred on the relevant day, when added to that cumulative total, exceeds the relevant project threshold.

(3)The “cumulative total of relevant expenditure attributable to the company's share of project-related reserves” at any time is the total amount of relevant expenditure which is incurred by the company during the period beginning with 1 April 2015 and ending with that time, but this is subject to sections 332IA(5) and 332IB(6) (which relate to the disposal and acquisition of shares in project-related reserves).

(4)The “relevant project threshold” is an amount given by the formula—

(5)This section does not apply to expenditure which is incurred on or after the day determined by the Secretary of State as that on which the project was materially completed.

(6)This section does not apply to expenditure incurred by a company if—

(a)the company does not, at the time when the expenditure is incurred, hold a share of project-related reserves, and

(b)the expenditure is incurred in making an asset available in a way which gives rise to tariff receipts (as defined by section 15(3) of the Oil Taxation Act 1983) or tax-exempt tariffing receipts (as defined by section 6A(2) of that Act).

(7)In this section “project-related reserves”, in relation to a project and an oil field, means the additional reserves of oil that the oil field has as a result of the project.

332DCRestriction relating to fields qualifying for onshore allowanceU.K.

(1)This section applies to investment expenditure which is incurred—

(a)for the purposes of onshore oil-related activities in respect of an oil field which is a qualifying site within the meaning of section 356C (generation of onshore allowance), and

(b)on a day at the beginning of which neither of the disqualifying conditions in section 356CA (disqualifying conditions for section 356C(4)(b)) is met.

(2)Expenditure to which this section applies is not relievable expenditure for the purposes of section 332C.

(3)In this section “onshore oil-related activities” has the same meaning as in Chapter 8 (see section 356BA).

Reduction of adjusted ring fence profitsU.K.

332EReduction of adjusted ring fence profitsU.K.

(1)A company's adjusted ring fence profits for an accounting period are to be reduced by the cumulative total amount of activated allowance for the accounting period (but are not to be reduced below zero).

(2)In relation to a company and an accounting period, the “cumulative total amount of activated allowance” is—

332EACarrying forward of activated allowanceU.K.

(1)This section applies where, in the case of a company and an accounting period, the cumulative total amount of activated allowance (see section 332E(2)) is greater than the adjusted ring fence profits.

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

Activated and unactivated allowance: basic calculation rulesU.K.

332FActivation of allowance: no change of equity shareU.K.

(1)This section applies where—

(a)for the whole or part of an accounting period, a company is a licensee in a qualifying oil field,

(b)the accounting period is not divided into reference periods (see section 332G),

(c)the company holds, for the accounting period and the qualifying oil field, a closing balance of unactivated allowance (see section 332FA) which is greater than zero, and

(d)the company has relevant income from the qualifying oil field for the accounting period.

(2)The amount of activated allowance the company has for that accounting period and that qualifying oil field is the smallest of—

(a)the closing balance of unactivated allowance held for the accounting period and the oil field;

(b)[F72the total amount of] the company's relevant income from that oil field for that accounting period;

(c)in a case where section 332FB applies, the relevant activation limit for the accounting period and the oil field (see subsection (2) of that section).

[F73(3)For the purposes of this Chapter, income is relevant income of a company from a qualifying oil field for an accounting period if it is—

(a)production income of the company from any oil extraction activities carried on in that oil field that is taken into account in calculating the company's adjusted ring fence profits for the accounting period, or

(b)income that—

(i)is income of such description (whether or not relating to the oil field) as may be prescribed by the Treasury by regulations, and

(ii)is taken into account as mentioned in paragraph (a).

(4)The Treasury may by regulations make such amendments of this Chapter as the Treasury consider appropriate in consequence of, or in connection with, any provision contained in regulations under subsection (3)(b).

(5)Regulations under subsection (3)(b) or (4) may provide for any of the provisions of the regulations to have effect in relation to accounting periods ending before (or current when) the regulations are made.

(6)But subsection (5) does not apply to—

(a)any provision of amending or revoking regulations under subsection (3)(b) which has the effect that income of any description is to cease to be treated as relevant income of a company from a qualifying oil field for an accounting period, or

(b)provision made under subsection (4) in consequence of or in connection with provision within paragraph (a).

(7)Regulations under this section may make transitional provision or savings.

(8)Regulations under this section may not be made unless a draft of the instrument containing them has been laid before, and approved by a resolution of, the House of Commons.]

332FAThe closing balance of unactivated allowance for an accounting periodU.K.

The closing balance of unactivated allowance held by a company for an accounting period and a qualifying oil field is—

332FBActivation limit for former additionally-developed fieldsU.K.

(1)This section applies to a company for an accounting period in relation to an oil field if—

(a)immediately before 1 April 2015 the oil field was an additionally-developed oil field for the purposes of Chapter 7 as a result of a project that fell within section 349A(1), and

(b)the project is not an excluded project (see subsection (3)).

(2)For the purposes of section 332F(2)(c), the “relevant activation limit” for the accounting period and the oil field is the amount that would be the closing balance of unactivated allowance held by the company for the accounting period if paragraph 7(3) of Schedule 12 to FA 2015 (conversion of unactivated field allowance) had never applied to any allowance attributable to the project.

(3)The project is an “excluded” project if condition A or condition B is met.

(4)Condition A is that—

(a)a substantial amount of work has been done in relation to the project, and

(b)the accounting period begins on or after the first day of the year of expected first production for the project.

(5)The “year of expected first production” for the project is the year that was notified to the Secretary of State, on or before the day on which the project was authorised by the Secretary of State, as the calendar year in which additional reserves of oil were expected to be first won from the field as a result of the project.

(6)Condition B is that the accounting period begins on or after the day determined under section 332DB(5) as that on which the project was materially completed.

332FCCarrying forward of unactivated allowanceU.K.

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

(2)The amount is—

(3)If the accounting period is followed by a reference period of the company belonging to that qualifying oil field (see section 332G), “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 periodsU.K.

332GReference periodsU.K.

(1)This section applies where—

(a)a company is a licensee in a qualifying oil field for the whole or part of an accounting period, and

(b)the company has different shares of the equity in the field on different days in the accounting period.

(2)For the purposes of this Chapter, the accounting period is to be divided 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 acquisition of a share of the equity in the qualifying oil field 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 period.

(3)Each such reference period “belongs to” the qualifying oil field concerned.

Changes in equity share: activation of allowanceU.K.

332HActivation of allowance: reference periodsU.K.

(1)The amount (if any) of activated allowance that a company has for a qualifying oil field for a reference period is the smallest of the following—

(a)the total amount of unactivated allowance that is attributable to the reference period and the oil field (see section 332HA);

(b)the company's relevant income from the oil field for the reference period (see subsection (2));

(c)in a case where section 332FB (activation limit applying in case of certain fields) applies, the relevant activation limit for the reference period and the oil field (see subsection (3)).

(2)The company's relevant income from the oil field for the reference period is so much of the company's relevant income from the oil field for the accounting period (see section 332F(3)) as arises in the reference period.

(3)If section 332FB (activation limit applying in case of certain fields) applies in relation to the oil field for the accounting period in which the reference period falls, the “relevant activation limit” for the reference period and the oil field is the amount that would be the total amount of unactivated allowance attributable to the reference period and the oil field if paragraph 7(3) of Schedule 12 to FA 2015 (conversion of unactivated field allowance) had never applied to any allowance attributable to the project in question.

332HAUnactivated amounts attributable to a reference periodU.K.

(1)For the purposes of section 332H(1)(a), the total amount of unactivated allowance attributable to a reference period and a qualifying oil field is—

(2)Where 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 332FC(1).

(3)Where the reference period is immediately preceded by another reference period, Q is equal to the amount (if any) carried forward under section 332HB(1).

332HBCarry-forward of unactivated allowance from a reference periodU.K.

(1)If, in the case of a reference period (“RP1”) of a company, the amount given by subsection (2) is greater than zero, that amount is treated as investment allowance held by the company for the qualifying oil field for the next period (and is treated as held with effect from the beginning of that period).

(2)The amount is—

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

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

Transfers of allowance on disposal of equity shareU.K.

332IIntroduction to sections 332IA and 332IBU.K.

(1)Sections 332IA and 332IB apply where—

(a)a company (“the transferor”) disposes of the whole or part of its share of the equity in a qualifying oil field, and

(b)one or more of the following conditions is met.

(2)The “unactivated allowance condition” is that immediately before the disposal the transferor holds unactivated investment allowance for the oil field.

(3)The “section 332DA expenditure condition” is that—

(a)immediately before the disposal the company has for the purposes of section 332DA (restriction where field qualified for field allowance as new field) a cumulative total of relevant expenditure attributable to its share of the equity in the oil field, and

(b)the date of the disposal falls before any date determined under section 332DA(5) (material completion).

(4)The “section 332DB expenditure condition” is that—

(a)immediately before the disposal the company has for the purposes of section 332DB (restriction where project in additionally-developed field qualified for field allowance) a cumulative total of relevant expenditure attributable to its share of project-related reserves in relation to the oil field, and

(b)the date of the disposal falls before any date determined under section 332DB(5) (material completion).

(5)In sections 332IA and 332IB—

(a)each of the companies to which a share of the equity is disposed of is referred to as “a transferee”, and

(b)references to conditions are to be read in accordance with this section.

332IAReduction of allowance if equity is disposed ofU.K.

(1)If the unactivated allowance condition is met, the following amount is to be deducted in calculating the total amount of unactivated investment allowance attributable to the qualifying oil field concerned that is to be carried forward under section 332FC or 332HB from an accounting period or reference period of the transferor—

(2)Subsection (3) applies if the section 332DA expenditure condition is met.

(3)As from the beginning of the accounting period or reference period that begins with the day on which the disposal is made, the following amount is to be deducted in calculating for the purposes of section 332DA the cumulative total of relevant expenditure attributable to the transferor's share of the equity in the oil field—

(4)Subsection (5) applies if the section 332DB expenditure condition is met.

(5)As from the beginning of the accounting period or reference period that begins with the day on which the disposal is made, the following amount is to be deducted in calculating for the purposes of section 332DB the cumulative total of relevant expenditure attributable to the transferor's share of project-related reserves—

332IBAcquisition of allowance if equity acquiredU.K.

(1)If the unactivated allowance condition is met, a transferee is treated as generating in the qualifying oil field concerned, at the beginning of the reference period or accounting period of the transferee that begins with the day on which the disposal is made, investment allowance of the amount given by subsection (2).

(2)The amount is—

(3)Subsection (4) applies if the section 332DA expenditure condition is met.

(4)A transferee is treated for the purposes of section 332DA(3) as having incurred in respect of the qualifying oil field, at the beginning of the reference period or accounting period of the transferee that begins with the day on which the disposal is made, expenditure of the following amount—

(5)Subsection (6) applies if the section 332DB expenditure condition is met.

(6)A transferee is treated for the purposes of section 332DB(3) as having incurred in respect of the project, at the beginning of the reference period or accounting period of the transferee that begins with the day on which the disposal is made, expenditure of the following amount—

(7)In subsection (6) “project-related reserves” means the additional reserves of oil that the oil field has as a result of the project.

MiscellaneousU.K.

332JAdjustmentsU.K.

(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)Any 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 332E on the profits or to the calculation of the amount to be carried forward under section 332EA).

332JARegulations amending specified percentagesU.K.

(1)The Treasury may by regulations substitute a different percentage for the percentage that is at any time specified in any of the following provisions—

(a)section 332C(2) (calculation of allowance as a percentage of investment expenditure);

(b)section 332DA(4) (calculation of relevant field threshold in relation to former new field);

(c)section 332DB(4) (calculation of relevant project threshold in relation to former additionally-developed field).

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

InterpretationU.K.

332KWhen expenditure is incurredU.K.

(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)Regulations under section 332BA(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.

(3)This section is subject to section 332CA(3).

332KAOther definitionsU.K.

In this Chapter (except where otherwise specified)—

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

• “cumulative total amount of activated allowance” has the meaning given by section 332E(2);

• “investment allowance” has the meaning given by section 332C(2);

• “licence” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act);

• “licensee” has the same meaning as in Part 1 of OTA 1975;

• “relevant income”, in relation to a qualifying oil field and an accounting period, has the meaning given by section 332F(3).]

F74Chapter 7U.K.REDUCTION OF SUPPLEMENTARY CHARGE FOR ELIGIBLE OIL FIELDS

Reduction of adjusted ring fence profitsU.K.

333Reduction of adjusted ring fence profitsU.K.

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Pool of field allowancesU.K.

334Company's pool of field allowancesU.K.

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335Carrying part of pool of field allowances into following periodU.K.

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336Carrying whole of pool of field allowances into following periodU.K.

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Field allowance: when held and unactivated amountU.K.

337Licensee to hold field allowanceU.K.

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338Holding a field allowance on acquisition of equity shareU.K.

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339Unactivated amount of field allowanceU.K.

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No change in equity share: activation of allowanceU.K.

340Introduction to section 341U.K.

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341Activation of field allowanceU.K.

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Change in equity share: activation of allowanceU.K.

342Introduction to sections 343 and 344U.K.

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343Reference periodsU.K.

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344Activation of field allowanceU.K.

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Change in equity share: transfer of field allowanceU.K.

345Introduction to sections 346 and 347U.K.

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346Reduction of field allowance if equity disposed ofU.K.

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347Acquisition of field allowance if equity acquiredU.K.

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MiscellaneousU.K.

348AdjustmentsU.K.

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349OrdersU.K.

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InterpretationU.K.

349A“Additionally-developed oil field”U.K.

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350“New oil field”U.K.

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351“Authorisation of development of an oil field”U.K.

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352“Qualifying oil field”U.K.

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353“Small oil field”U.K.

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354“Ultra heavy oil field”U.K.

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355“Ultra high pressure/high temperature oil field”U.K.

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355A“Large deep water oil field”U.K.

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355B“Large shallow water gas field”U.K.

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355C“Deep water gas field”U.K.

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356“Total field allowance for a new oil field”U.K.

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356A“Total field allowance for an additionally-developed oil field”U.K.

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356AAOther definitionsU.K.

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357Other definitionsU.K.

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[F75CHAPTER 8U.K.Supplementary charge: onshore allowance

IntroductionU.K.

356BOverviewU.K.

This Chapter sets out how relief for certain capital expenditure incurred for the purposes of onshore oil-related activities is given by way of reduction of a company's adjusted ring fence profits, and includes provision about—

(a)the need for allowance held for a site to be activated by relevant income from the same site in order for the allowance to be available for reducing adjusted ring fence profits,

(b)elections by a company to transfer allowance between different sites in which it is a licensee (see section 356F), and

(c)mandatory transfers of allowance where shares in the equity in a licensed area are disposed of (see sections 356H to 356HB and the related provisions in sections 356G to 356GD).

356BA“Onshore oil-related activities”U.K.

(1)In this Chapter “onshore oil-related activities” means activities of a company which are carried on onshore and—

(a)fall within any of subsections (1) to (4) of section 356BB, or

(b)consist of the acquisition, enjoyment or exploitation of oil rights.

(2)Activities of a company are carried on “onshore” if they are authorised—

(a)under a landward licence under Part 1 of the Petroleum Act 1998 or the Petroleum (Production) Act 1934, or

(b)under a licence under the Petroleum (Production) Act (Northern Ireland) 1964.

(3)In subsection (2)(a) “landward licence” means a licence in respect of an area which falls within the definition of “landward area” in the regulations pursuant to which the licence was applied for.

356BBThe activitiesU.K.

(1)Activities of a company in searching for oil or causing such searching to be carried out for the company.

(2)Activities of a company in extracting oil, or causing oil to be extracted for it, under rights which—

(a)authorise the extraction, and

(b)are held by it or by a company associated with it.

(3)Activities of a company in transporting, or causing to be transported for it, oil extracted under rights which—

(a)authorise the extraction, and

(b)are held as mentioned in subsection (2)(b),

but only if the transportation meets the condition in subsection (5).

(4)Activities of the company in effecting, or causing to be effected for it, the initial treatment or initial storage of oil won from any site under rights which—

(a)authorise its extraction, and

(b)are held as mentioned in subsection (2)(b).

(5)The condition mentioned in subsection (3) is that the transportation is to a place at which the seller in a sale at arm's length could reasonably be expected to deliver it (or, if there is more than one such place, the one nearest to the place of extraction).

(6)In this section “initial storage”—

(a)means, in relation to oil won from a site, the storage of a quantity of oil won from the site not exceeding 10 times the relevant share of the maximum daily production rate of oil for the site as planned or achieved (whichever is greater), but

(b)does not include the matters excluded by paragraphs (a) to (c) of the definition of “initial storage” in section 12(1) of OTA 1975;

and in this subsection “the relevant share” means a share proportionate to the company's share of oil won from the site concerned.

(7)In this section “initial treatment” has the meaning given by section 12(1) of OTA 1975; but for this purpose that definition is to be read as if the references in it to an oil field were to a site.

356BC“Site”U.K.

In this Chapter “site” (except in the expression “drilling and extraction site”) means—

(a)a drilling and extraction site that is not used in connection with any oil field, or

(b)an oil field (whether or not one or more drilling and extraction sites are used in connection with it).

Onshore allowanceU.K.

356CGeneration of onshore allowanceU.K.

(1)Subsection (2) applies where a company incurs any relievable capital expenditure in relation to a qualifying site.

(2)The company is to hold an amount of allowance equal to 75% of the amount of the expenditure.

(3)“Qualifying site” means a site whose development (in whole or in part) is authorised for the first time on or after 5 December 2013.

(4)Capital expenditure incurred by a company is “relievable” only if, and so far as—

(a)it is incurred for the purposes of onshore oil-related activities (see section 356BA), and

(b)neither of the disqualifying conditions is met at the beginning of the day on which the expenditure is incurred (see section 356CA).

[F76(4A)Subsections (1) to (4) are subject to section 356CAA (which prevents expenditure on the acquisition of an asset from being relievable in certain circumstances).]

(5)Allowance held under this Chapter is called “onshore allowance”.

(6)Onshore allowance is said in this Chapter to be “generated” at the time when the capital expenditure is incurred (see section 356JA).

(7)Onshore allowance is referred to in this Chapter as being generated—

(a)“by” the company concerned,

(b)“at” the site concerned.

(8)Where capital expenditure is incurred only partly for the purposes of onshore oil-related activities, or the onshore oil-related activities for the purposes of which capital expenditure is incurred are carried on only partly in relation to a particular site, the expenditure is to be attributed to the site concerned on a just and reasonable basis.

(9)In this section, references to authorisation of development of a site—

(a)in the case of a site which is an oil field, are to be read in accordance with [F77section 356IB];

(b)in the case of a drilling and extraction site, are to be read in accordance with section 356J.

356CADisqualifying conditions for section 356C(4)(b)U.K.

(1)The first disqualifying condition is that production from the site is expected to exceed 7,000,000 tonnes.

(2)The second disqualifying condition is that production from the site has exceeded 7,000,000 tonnes.

(3)For the purposes of this section 1,100 cubic metres of gas at a temperature of 15 degrees celsius and pressure of one atmosphere is to be counted as equivalent to one tonne.

[F78356CAAExpenditure on acquisition of asset: further disqualifying conditionsU.K.

(1)Capital expenditure incurred by a company (“the acquiring company“) on the acquisition of an asset (“the acquisition concerned”) is not relievable capital expenditure for the purposes of section 356C if subsection (2), (3) or (8) applies to the asset.

(2)This subsection applies to the asset if capital expenditure incurred before the acquisition concerned, by the acquiring company or another company, in acquiring, bringing into existence or enhancing the value of the asset was relievable under section 356C.

(3)This subsection applies to the asset if—

(a)the asset—

(i)is the whole or part of the equity in a qualifying site, or

(ii)is acquired in connection with a transfer to the acquiring company of the whole or part of the equity in a qualifying site,

(b)capital expenditure was incurred before the acquisition concerned, by the acquiring company or another company, in acquiring, bringing into existence or enhancing the value of the asset, and

(c)any of that expenditure—

(i)related to the qualifying site, and

(ii)would have been relievable under section 356C if this Chapter had been fully in force and had applied to expenditure incurred at that time.

(4)For the purposes of subsection (3)(a)(ii) it does not matter whether the asset is acquired at the time of the transfer.

(5)In subsection (3)(c) “this Chapter” means the provisions of this Chapter as those provisions have effect at the time when the capital expenditure mentioned in subsection (1) is incurred.

(6)The reference in subsection (3)(c)(i) to the qualifying site includes an area that, although not a qualifying site when the expenditure mentioned in subsection (3)(b) was incurred, subsequently became the qualifying site.

(7)Where expenditure mentioned in subsection (3)(b) related to an area which subsequently became the qualifying site, the following sub-paragraph is to be treated as substituted for subsection (3)(c)(ii)—

“(ii)would have been relievable under section 356C if the area in question had been a qualifying site when the expenditure was incurred, or if the area in question had been such a site at that time and this Chapter had been fully in force and had applied to expenditure incurred at that time.”

(8)This subsection applies to the asset if—

(a)capital expenditure mentioned in subsection (1) would, in the absence of this section, be relievable under section 356C by reason of an election under section 356CB (treatment of expenditure not related to an established site), and

(b)capital expenditure which was incurred before the acquisition concerned, by the acquiring company or another company, in acquiring, bringing into existence or enhancing the value of the asset, either—

(i)has become relievable under section 356C by reason of an election under section 356CB, or

(ii)would be so relievable if such an election were made in respect of that expenditure.

(9)In determining for the purposes of subsection (8)(b) whether particular expenditure was incurred “before” the acquisition concerned—

(a)paragraph (b) of section 356CB(6) is to be ignored, and

(b)accordingly, that expenditure is to be taken (for the purposes of determining whether it was incurred before the acquistion concerned) to have been incurred when it was actually incurred.

(10)For the purposes of subsection (8)(b)(ii) it does not matter if an election is not in fact capable of being made.]

356CBExpenditure not related to an established siteU.K.

(1)A company may make an election under this section in relation to capital expenditure incurred by it for the purposes of onshore oil-related activities if the appropriate condition is met.

(2)The appropriate condition is that at the time of the election no site can be identified as a site in relation to which the expenditure has been incurred.

(3)An election may not be made before the beginning of the third accounting period of the company after that in which the expenditure is incurred.

(4)An election must specify—

(a)the expenditure in question,

(b)a site (“the specified site”) every part of which is, or is part of, an area in which the company is a licensee, and

(c)an accounting period of the company (“the specified accounting period”).

(5)The specified accounting period must not be earlier than the accounting period in which the election is made.