Finance Act 2006 (c. 25)

(The document as of February, 2008)

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(3) The amendment made by this paragraph comes into force on the day on which this Act is passed.

Returns by participators

7 (1) In Schedule 2 (management and collection) paragraph 2 is amended as follows.

(2) In sub-paragraph (2)(a)(iii) (market value of oil disposed of otherwise than by sale at arm's length) for "in the calendar month in which the delivery was made" substitute "as determined in accordance with Schedule 3 to this Act in the case of the delivery".

(3) In sub-paragraph (2)(b)(ii) (market value of oil relevantly appropriated) for "in the calendar month in which the delivery was made" substitute "as determined in accordance with Schedule 3 to this Act in the case of the appropriation".

(4) In sub-paragraph (2)(d)(ii) (market value of oil not disposed of etc at end of period) for "in the last calendar month" substitute "on the last business day".

Gas fractionation

8 (1) In Schedule 3 (petroleum revenue tax: miscellaneous provisions) paragraph 2A (market value of oil that consists of or includes gas) is amended as follows.

(2) In sub-paragraph (1)--

(a) for "(2D)" substitute "(2I)";

(b) omit ", or in accordance with those sub-paragraphs as modified by sub-paragraph (3) of that paragraph,".

(3) In sub-paragraph (2)--

(a) for the words from the beginning to "paragraph 2 above" where first occurring substitute "Sub-paragraph (2)(d) or (as the case may be) (2AA)(d) of paragraph 2 above";

(b) after "in sub-paragraph (2)" insert "or (2AA)".

(4) In sub-paragraph (3)--

(a) after "in sub-paragraph (2)" insert "or (2AA)",

(b) for "(2D)" substitute "(2I)";

Aggregate market value of oil for purposes of section 2(5)

9 In Schedule 3, for paragraph 3 substitute--

" 3 (1) For the purposes of subsection (5) of section 2 of this Act, the aggregate market value of any oil falling within paragraph (b) or (c) of that subsection is arrived at as follows.

(2) In the case of oil falling within paragraph (b) of that subsection and delivered as there mentioned in the chargeable period in question--

(a) for each delivery, find (in accordance with paragraph 2 above (read, where applicable, with paragraph 2A above)) the market value of the quantity of oil delivered, and

(b) aggregate the market values so found.

(3) In the case of oil falling within paragraph (c) of that subsection and appropriated as there mentioned in the chargeable period in question--

(a) for each appropriation, find (in accordance with paragraph 2 above (read, where applicable, with paragraph 2A above)) the market value of the quantity of oil appropriated, and

(b) aggregate the market values so found. " .

Power to make regulations

10 At the end of Schedule 3 insert--

" Power to make regulations under this Schedule

12 (1) Any power to make regulations under this Schedule is exercisable by statutory instrument.

(2) A statutory instrument containing regulations under this Schedule may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.

(3) Any power to make regulations under this Schedule includes power--

(a) to make different provision for different Categories or kinds of oil or for different cases, or

(b) to make incidental, consequential, supplemental, or transitional provision or savings. " .

Part 2 Amendments of other enactments

Finance (No. 2) Act 1987

The designated fraction for the month

11 (1) Schedule 8 to F(No.2)A 1987 (amendments of Schedule 10 to FA 1987) is amended as follows.

(2) Omit paragraph 5 (which contains amendments making provision for certain amounts to be multiplied by a fraction greater than unity, and has not been brought into force).

(3) The amendment made by this paragraph has effect for chargeable periods beginning on or after 1st July 2006.

Income and Corporation Taxes Act 1988

Valuation of oil disposed of or appropriated in certain circumstances.

12 (1) Section 493 of ICTA (valuation of oil disposed of or appropriated in certain circumstances) is amended as follows.

(2) Before subsection (1) insert--

" (A1) Where the conditions in subsection (A2) below are met in the case of a disposal of oil by a person, section 2(5A) of the Oil Taxation Act 1975 ("the 1975 Act") (transportation etc) is to apply in determining the amount which the person 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 the purposes of petroleum revenue tax.

(A2) The conditions are that--

(a) the oil is oil won from an oil field in the United Kingdom,

(b) the disposal is a disposal of the oil by the person crude in a sale at arm's length, as defined in paragraph 1 of Schedule 3 to the 1975 Act,

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

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

(d) the terms of the contract are such as are described in the opening words of section 2(5A) of the 1975 Act,

(e) apart from subsection (A1) above, the person is not entitled to a transportation allowance in respect of the oil (see subsection (A3)) in computing his ring fence profits,

(f) the person does not claim a transportation allowance in respect of the oil in computing for the purposes of corporation tax any profits of his that are not ring fence profits.

(A3) In subsection (A2) above "transportation allowance", in relation to any oil, means any of the following--

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

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

(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 the 1975 Act, if that provision applied for the purposes of corporation tax. " .

(3) In subsection (1)--

(a) omit "in a particular month", and

(b) for "the Oil Taxation Act 1975 ("the 1975 Act")" substitute "the 1975 Act".

(4) In subsection (2), omit "in a particular month".

(5) In subsection (3), omit "in the calendar month in which the disposal was made".

(6) In subsection (4), omit "in the calendar month in which it was appropriated".

(7) For subsection (5) substitute--

" (5) For the purposes of subsections (3) and (4) above, paragraph 2 of Schedule 3 to the 1975 Act shall apply as it applies for the purposes of Part 1 of that Act, but with the following modifications--

(a) sub-paragraph (4) shall be treated as omitted;

(b) any reference in paragraphs 2 and 2A to oil being relevantly appropriated shall be construed as a reference to its being appropriated as mentioned in section 493(4) of the Taxes Act; and

(c) any reference in paragraph 2 to the notional delivery day for the actual oil shall be construed as a reference to the day on which the oil is disposed of or appropriated as mentioned in subsection (3) or (4) above. " .

Section 154

SCHEDULE 19 Schedule to be inserted as Schedule 19C to ICTA

The following is the Schedule to be inserted as Schedule 19C to ICTA--

Section 496B

" SCHEDULE 19C Petroleum extraction activities: ring fence expenditure supplement

Part 1 Introductory

About this Schedule

1 (1) This Schedule entitles a company carrying on a ring fence trade, on making a claim in respect of an accounting period beginning on or after 1st January 2006, to a supplement (initially of 6%, but variable by Treasury order) in respect of--

(a) qualifying pre-commencement expenditure incurred before the trade is set up and commenced,

(b) losses incurred in the trade, and

(2) Part 2 makes provision about the application and interpretation of this Schedule.

(3) Part 3 makes 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) Part 4 makes provision about supplement in relation to losses incurred in carrying on the ring fence trade.

(5) There is a limit on the number of accounting periods (6) in respect of which a company may claim supplement.

(6) In determining the amount of supplement allowable, reductions fall to be made in respect of--

(a) disposal receipts in respect of any asset representing qualifying pre-commencement expenditure,

(b) ring fence losses that could be set off under section 393A against ring fence profits of earlier periods,

(c) ring fence losses incurred in earlier periods that fall to be set off under section 393 against profits of succeeding periods,

(d) unrelieved group ring fence profits.

Part 2 Application and interpretation

Qualifying companies

2 This Schedule 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,

and in this Schedule any such company is referred to as a "qualifying company".

Accounting periods

3 (1) In this Schedule, in the case of any 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 any accounting period beginning on or after 1st January 2006--
(a)
which is the commencement period, or
(b)
which ends after the commencement period;
"pre-commencement period" means any accounting period--
(a)
beginning on or after 1st January 2006, and
(b)
ending before the commencement period.

(2) For the purposes of this Schedule 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 any qualifying company beginning before 1st January 2006 and ending on or after that date--

(a) so much of the straddling period as falls before 1st 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 Schedule.

(4) But special provision is made elsewhere in this Schedule in relation to straddling periods (see paragraphs 5, 18 and 21(4) to (6)).

The relevant percentage

4 (1) For the purposes of this Schedule, the relevant percentage for any accounting period beginning on or after 1st January 2006 is 6%.

(2) The Treasury may by order vary the percentage for the time being specified in sub-paragraph (1) above for such accounting periods as may be specified in the order.

Limit on number of accounting periods for which supplement may be claimed

5 (1) A company may claim supplement under this Schedule in respect of no more than 6 accounting periods.

(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 (exploration expenditure supplement) in respect of an accounting period is to count for the purposes of this paragraph as a claim for supplement under this Schedule in respect of that accounting period.

(4) But, if the company makes a claim for supplement under this Schedule in respect of the deemed accounting period, any claim for supplement by the company under Schedule 19B in respect of the Schedule 19B deemed accounting period is to be ignored for the purposes of this paragraph.

(5) For this purpose--

"the deemed accounting period" means the deemed accounting period under paragraph 3(3) beginning on 1st January 2006, and
"the Schedule 19B deemed accounting period" means the deemed accounting period under paragraph 3(3) of Schedule 19B ending before 1st January 2006.

Qualifying pre-commencement expenditure

6 (1) For the purposes of this Schedule, expenditure is "qualifying pre-commencement expenditure" if it meets conditions A to D.

(2) Condition A is that the expenditure is incurred on or after 1st 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 person with a view to carrying on a ring fence trade but before the person 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 paragraph, expenditure incurred by a company is "relevant R&D expenditure incurred by an SME" if--

(a) the company makes an election under paragraph 14 of Schedule 20 to the Finance Act 2000 (R&D tax relief for SMEs: alternative treatment of pre-trading expenditure) in respect of that expenditure, but

(b) the company does not make a claim for an R&D tax credit under that Schedule 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 Schedule as being equal to 150% of its actual amount.

(8) In the case of any qualifying pre-commencement expenditure which is relevant R&D expenditure incurred by a large company, the amount of that expenditure is treated for the purposes of this Schedule as being equal to 125% of its actual amount.

(9) For this purpose "relevant R&D expenditure incurred by a large company" means qualifying expenditure within the meaning given by paragraph 11(3) of Schedule 12 to the Finance Act 2002 (R&D tax relief for large companies).

Unrelieved group ring fence profits for accounting periods

7 (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 of companies, within the meaning given by section 413(3)(a), and

(b) company X has an amount of taxable ring fence profits (see paragraph 8) 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 834(4), to the part of that period which falls within the accounting period of company Q.

(5) This paragraph applies for the purposes of this Schedule.

Taxable ring fence profits of an accounting period

8 For the purposes of this Schedule, 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 Chapter 4 of Part 10.

Part 3 Pre-commencement supplement

Supplement in respect of a pre-commencement accounting period

9 (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 Part of this Schedule ("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 paragraph 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 twelve months, the amount of the supplement for the period (apart from this sub-paragraph) is to be reduced proportionally.

(5) Paragraphs 10 to 13 have effect for the purpose of determining the reference amount for a pre-commencement period.

The mixed pool of qualifying pre-commencement expenditure and supplement previously allowed

10 (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,

(b) qualifying pre-commencement expenditure, and

(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,

(b) the company's qualifying pre-commencement expenditure, allocated to the pool for each pre-commencement period in accordance with sub-paragraph (3), and

(c) the company's pre-commencement supplement, allocated to the pool for each pre-commencement period in accordance with sub-paragraph (4).

(3) To allocate qualifying pre-commencement expenditure to the pool for any pre-commencement period, take the following steps--

(a) Step 1: count as eligible expenditure for that period so much of the qualifying pre-commencement expenditure mentioned in paragraph 9(1) as was incurred in that period,

(b) Step 2: find the total of all the eligible expenditure for that period (amount E),

(d) Step 4: if paragraph 12 applies, reduce (or, as the case may be, further reduce) amount E in accordance with that paragraph,

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 paragraph references to the relevant amount (if any) which the company carries forward under Schedule 19B are to the amount in its mixed pool for the purposes of Part 3 of Schedule 19B immediately before 1st January 2006.

Reduction in respect of disposal receipts under the Capital Allowances Act

11 (1) This paragraph 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 the Capital Allowances Act in respect of that expenditure,

(d) the event would, on the relevant assumption, require a disposal value (the "deductible amount") to be brought into account under any provision of the Capital Allowances Act 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.

Reduction in respect of unrelieved group ring fence profits

12 (1) This paragraph 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 paragraph 11, 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.

The reference amount for a pre-commencement period

13 For the purposes of this Part of this Schedule, 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 paragraph 10(3), but

(b) before determining, and adding to the pool, the amount of any pre-commencement supplement claimed in respect of the period.

Claims for pre-commencement supplement

14 (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 the Finance Act 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.

Part 4 Post-commencement supplement

Supplement in respect of a post-commencement period

15 (1) A qualifying company which incurs a ring fence loss (see paragraph 17) in a post-commencement period may claim supplement under this Part of this Schedule ("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 this Part of this Schedule or Part 4 of Schedule 19B) 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 set off under section 393 against trading income from the ring fence trade in succeeding accounting periods.

(3) Paragraph 74 of Schedule 18 to the Finance Act 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.

Amount of post-commencement supplement for a post-commencement period

16 (1) The amount of the post-commencement supplement for any post-commencement period in respect of which a claim under paragraph 15 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 twelve months, the amount of the supplement for the period (apart from this sub-paragraph) is to be reduced proportionally.

(3) Paragraphs 19 to 23 have effect for the purpose of determining the reference amount for a post-commencement period.

Ring fence losses

17 (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 set off under section 393 against trading income from the trade in succeeding accounting periods,

so much of the loss as falls to be so set off is a "ring fence loss" of the company.

(2) In determining for the purposes of this Part of this Schedule how much of a loss incurred in a ring fence trade falls to be set off as mentioned in sub-paragraph (1)(b), the following assumption is to be made.

(3) The assumption is that every claim is made that could be made by the company under section 393A to set losses incurred in the ring fence trade against ring fence profits of earlier post-commencement periods.

(4) This paragraph is subject to paragraph 18 (special rule for straddling periods).

(5) This paragraph has effect for the purposes of this Part of this Schedule.

Special rule for straddling periods

18 (1) This paragraph applies if the period of the loss in which a ring fence loss is incurred is the deemed accounting period under paragraph 3(3) beginning on 1st January 2006 ("the deemed accounting period").

(2) The amount of the 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, 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 the Capital Allowances Act in respect of relevant expenditure.
For the purposes of this step "relevant expenditure" means expenditure incurred by the company on or after 1st January 2006 which, but for that fact, would be qualifying E&A expenditure for the purposes of Schedule 19B.
For the purposes of this step a ring fence loss is attributable to those allowances to the extent that 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-1st January 2006 E&A allowances".
Step 3
Deduct the qualifying Schedule 19B amount and the amount of the post-1st 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-1st January 2006 E&A allowances.

(3) In this paragraph "the straddling period", in relation to a qualifying company, means an accounting period of the company--

(a) beginning before 1st January 2006, and

(b) ending on or after that date,

disregarding paragraph 3(3).

(4) In this paragraph 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 paragraph 17.

(5) This paragraph has effect for the purposes of this Part of this Schedule.

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