Income Tax (Trading and Other Income) Act 2005

[F1 Chapter 16A U.K. Oil activities

Textual Amendments

F1 Pt. 2 Ch. 16A inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 1 para. 2 (with Sch. 9 paras. 1-9, 22)

[F2 Application of Chapter U.K.

Textual Amendments

F2 S. 225ZH and cross-heading inserted (with effect in accordance with Sch. 4 paras. 56, 57 of the amending Act) by Finance Act 2013 (c. 29), Sch. 4 para. 34

225ZH Chapter not to apply where cash basis used U.K.

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.]

Basic definitions U.K.

225A Meaning of “oil extraction activities” U.K.

(1) In this Chapter “oil extraction activities” means activities within any of subsections (2) to (5) (but see also section 225M(6)).

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

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

(a) authorise the extraction, and

(b) are held by that person.

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

(a) authorise the extraction, and

(b) are held by that person,

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

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

(a) authorise its extraction, and

(b) are held by that person.

(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 person 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 person'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).

225B Meaning of “oil rights” U.K.

In this Chapter “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.

225C Meaning of “ring fence income” U.K.

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

225D Meaning of “ring fence trade” U.K.

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

(a) are within the definition of “oil-related activities” in section 16(2) (oil extraction and related activities), and

(b) constitute a separate trade (whether because of section 16(1) or otherwise).

225E Other definitions U.K.

In this Chapter—

• “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).

Oil valuation U.K.

225F Valuation where market value taken into account under section 2 of OTA 1975 U.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 income tax purposes, 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.

225G Valuation where disposal not sale at arm's length U.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 225F does not apply in relation to the disposal.

(5) For income tax purposes, 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.

225H Valuation where excess of nominated proceeds U.K.

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

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

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

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

225I Valuation where relevant appropriation but no disposal U.K.

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

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

(3) Condition B is that the person 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 that person in a chargeable period from an oil field, or

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

(4) For income tax purposes, the person 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 16(2) (oil extraction and related activities), and

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

(5) For income tax 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.

225J Valuation where appropriation to refining etc U.K.

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

(2) Condition A is that a person appropriates 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 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 225I does not apply in relation to the appropriation.

(5) For income tax purposes—

(a) the person is to be treated as having, at the time of the appropriation, sold and purchased the oil as mentioned in section 225I(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.

Regional development grants U.K.

225K Reduction of expenditure by reference to regional development grant U.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 income tax on the income arising from the activities of the person mentioned in subsection (2) which are treated by section 16(1) (oil extraction and related activities) 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).

Modifications etc. (not altering text)

C1 S. 225K(3)(b) modified (1.4.2010) (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 9 para. 35(a) (with Sch. 9 paras. 1-9, 22))

225L Adjustment as a result of regional development grant U.K.

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

(2) Condition A is that expenditure incurred by a person in relation to an asset in a tax year (“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 225K of this Act, in determining that person's liability to income 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 a tax year (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 person 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 person concerned is to be treated, for the purpose of determining that person's liability to income 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 225K(6).

Modifications etc. (not altering text)

C2 S. 225L(3) modified (1.4.2010) (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 9 para. 35(b) (with Sch. 9 paras. 1-9, 22))

C3 S. 225L(7) modified (1.4.2010) (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 9 para. 35(b) (with Sch. 9 paras. 1-9, 22))

Tariff receipts etc U.K.

225M Tariff receipts etc U.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 16(1) (oil extraction and related activities).

(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 Chapter 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 878(5) of this Act (application of definition 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 guarantees U.K.

225N [F3 Expenditure 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.

[F4 (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 [F5 the 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.

F6 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F6 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F7 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) In this Chapter—

• “abandonment guarantee” has the same meaning as it has for the purposes of [F8 section 3 of OTA 1975] (see section 104 of [F9 FA 1991]), and

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

Textual Amendments

F3 S. 225N heading substituted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 14(4)

F4 S. 225N(1A) inserted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 1(2)(a)

F5 Words in s. 225N(2) substituted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 1(2)(b)

F6 S. 225N(3)(4) omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 6(2)

F7 S. 225N(5) omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 14(2)

F8 Words in s. 225N(6) substituted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 14(3)(a)

F9 Words in s. 225N(6) substituted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 14(3)(b)

F10 225O Relief for reimbursement expenditure under abandonment guarantees U.K.

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

Textual Amendments

F10 S. 225O omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 6(3)

F11 225P Payment under abandonment guarantee not immediately applied U.K.

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

Textual Amendments

F11 Ss. 225P, 225Q omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 15

F11 225Q Amounts excluded from section 225O(1) U.K.

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

Textual Amendments

F11 Ss. 225P, 225Q omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 15

Abandonment expenditure U.K.

225R [F12 Introduction to section 225S] U.K.

(1) [F13 Section 225S applies] if—

(a) paragraph 2A of Schedule 5 to OTA 1975 applies F14 ..., and

(b) the default payment falls (in whole or part) to be attributed to the contributing participator under paragraph 2A(2) of that Schedule [F15 , or would fall to be so attributed if a claim under paragraph 2A(2) of that Schedule were made ].

[F16 (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 225S “the additional abandonment expenditure” means the amount which is [F17 or 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.

Textual Amendments

F12 S. 225R heading substituted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 16(b)

F13 Words in s. 225R(1) substituted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 16(a)

F14 Words in s. 225R(1)(a) omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 1(3)(a)

F15 Words in s. 225R(1)(b) inserted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 1(3)(b)

F16 S. 225R(1A) inserted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 1(3)(c)

F17 Words in s. 225R(2) inserted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 1(3)(d)

225S Relief for expenditure incurred by a participator in meeting defaulter's abandonment expenditure U.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.

F18 225T Reimbursement by defaulter in respect of certain abandonment expenditure U.K.

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

Textual Amendments

F18 S. 225T omitted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 31 para. 9

Interest on repayment of APRT U.K.

225U Interest on repayment of APRT U.K.

(1) Subsection (2) 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).

(2) The interest paid is to be disregarded in calculating the participator's income for income tax purposes.]

[F19 Receipts arising from decommissioning U.K.

Textual Amendments

F19 S. 225V and cross-heading inserted (with effect in accordance with Sch. 31 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 31 para. 22

225V Receipts arising from decommissioning U.K.

(1) This section applies if—

(a) a person 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 person that is or has been carrying on a ring fence trade (“the contributing person”) 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 person 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 person 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 person's ring fence trade for the relevant tax year (see subsection (4)).

(4) “The relevant tax year” means the tax year 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 subsection (5).

(5) If the contributing person's ring fence trade is permanently discontinued before the certification date, “the relevant tax year” is the last tax year in which that trade is carried on.

(6) The relevant difference is to be determined—

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

(b) in any other case, at the end of the relevant tax year.

(7) In a case where subsection (5) applies, any income tax chargeable for the relevant tax year by virtue of this section is due and payable for the tax year in which the certification date falls.

(8) Any additional assessment to income 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 tax year in which the certification date falls.

(9) 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 of CTA 2010,

• “reimbursement payment” means any payment made to the contributing person by the defaulter in reimbursing the contributing person in respect of, or otherwise making good to the contributing person, 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.]