Chapter 5: Ring fence expenditure supplement
Overview
1037.This Chapter rewrites the rules in Schedule 19C to ICTA, which provide a supplement for certain expenditure incurred on or after 1 January 2006. These rules superseded the exploration expenditure supplement in Schedule 19B to ICTA, which applies to expenditure incurred before 1 January 2006. Schedule 19B is therefore of limited future application and is not rewritten. This also means that certain terms used in this Chapter such as “the carried forward qualifying Schedule 19B amount” do not need to be altered.
Section 307: Overview of Chapter
1038.This section sets out an overview of the Chapter. It is based on paragraph 1 of Schedule 19C to ICTA.
Section 308: Qualifying companies
1039.This section sets out the definition of a qualifying company for the purposes of this Chapter. It is based on paragraph 2 of Schedule 19C to ICTA.
Section 309: Accounting periods
1040.This section sets out defined terms for accounting periods that lie either side of, or straddle, 1 January 2006. It is based on paragraph 3 of Schedule 19C to ICTA.
Section 310: The relevant percentage
1041.This section sets out the relevant percentage for the supplement and provides a power for the Treasury to vary the percentage by order. It is based on paragraph 4 of Schedule 19C to ICTA.
Section 311: Limit on number of accounting periods for which supplement may be claimed
1042.This section limits to six the number of accounting periods for which supplement may be claimed. It is based on paragraph 5 of Schedule 19C to ICTA.
1043.Subsection (3) directs that a claim for an accounting period under Schedule 19B to ICTA counts as part of the overall total of six accounting periods.
Section 312: Qualifying pre-commencement expenditure
1044.This section defines “qualifying pre-commencement expenditure” for the purposes of the Chapter. It is based on paragraph 6 of Schedule 19C to ICTA.
Section 313: Unrelieved group ring fence profits for accounting periods
1045.This section defines the term “unrelieved group ring fence profits” for an accounting period. It is based on paragraph 7 of Schedule 19C to ICTA.
1046.The broad scheme of the supplement is to increase the amount of certain expenditure and losses that cannot be relieved immediately to reflect the time value of the delay in obtaining effective tax relief. But where there are unrelieved profits from a ring fence trade elsewhere in the same group, some or all of the losses could have been used against those other ring fence profits in the same accounting period. Where this is the case supplement is restricted by section 318 or 328 as appropriate. The pool of expenditure eligible for supplement in a given period is reduced by the amount of any unrelieved group ring fence profits.
1047.This term applies for both pre-commencement and post-commencement supplement.
Section 314: Taxable ring fence profits for an accounting period
1048.This section defines the term “taxable ring fence profits” for the purposes of the Chapter. It is based on paragraph 8 of Schedule 19C to ICTA.
1049.This term is used in section 313 to determine the amount of unrelieved group ring fence profits.
Section 315: Supplement in respect of a pre-commencement accounting period
1050.This section sets out when a company may qualify for pre-commencement supplement, and how the supplement is given effect. It is based on paragraph 9 of Schedule 19C to ICTA.
1051.Supplement is given as a percentage of the “reference amount”, which is defined in section 319. “Pre-commencement period” is defined in section 309.
Section 316: The mixed pool of qualifying pre-commencement expenditure and supplement previously allowed
1052.This section sets out how the pool of expenditure that qualifies for pre-commencement supplement is determined. It is based on paragraph 10 of Schedule 19C to ICTA.
1053.The pool can include amounts carried forward from the exploration expenditure supplement in Schedule 19B to ICTA.
Section 317: Reduction in respect of disposal receipts under CAA 2001
1054.This section restricts the amount of expenditure eligible for supplement where there is a relevant disposal receipt taken into account under CAA. It is based on paragraph 11 of Schedule 19C to ICTA.
Section 318: Reduction in respect of unrelieved group ring fence profits
1055.This section restricts the amount eligible for supplement where some or all of the expenditure could have been surrendered as group relief. It is based on paragraph 12 of Schedule 19C to ICTA.
1056.The term “unrelieved group ring fence profits” is defined in section 313.
Section 319: The reference amount for a pre-commencement period
1057.This section defines the “reference amount” for the purposes of section 315. It is based on paragraph 13 of Schedule 19C to ICTA.
1058.The reference amount is the amount on which supplement can be claimed, that is the eligible expenditure reduced under either or both of sections 317 and 318 as appropriate.
Section 320: Claims for pre-commencement supplement
1059.This section sets out how a claim for pre-commencement supplement must be made and applies the time limit in paragraph 74 of Schedule 18 to FA 1998 to the claim. It is based on paragraph 14 of Schedule 19C to ICTA.
Section 321: Supplement in respect of a post-commencement period
1060.This section sets out when a company may qualify for post-commencement supplement, and how the claim is given effect. It is based on paragraph 15, 17 and 18 of Schedule 19C to ICTA.
1061.The calculation of post-commencement supplement is set out in sections 322 to 329. Under subsection (2 ) the supplement is treated as a loss carried forward to be set against future profits from the ring fence trade.
Section 322: Amount of post-commencement supplement for a post-commencement period.
1062.This section sets out how to calculate the amount of the post-commencement supplement. It is based on paragraph 16 of Schedule 19C to ICTA.
1063.The supplement is a percentage of the “reference amount”. The percentage is specified in section 310 and “reference amount” for post-commencement supplement is defined in section 329.
Section 323: Ring fence losses
1064.This section sets out how much of a trading loss from the ring fence trade is eligible for inclusion in the calculation of post-commencement supplement. It is based on paragraph 17 of Schedule 19C to ICTA.
1065.Subsection (3) provides thatlosses are not eligible for supplement if they could have been claimed against profits from an earlier accounting period.
Section 324: Special rule for straddling periods
1066.This section sets out the rules that apply where a company’s accounting period straddles 1 January 2006. It is based on paragraph 18 of Schedule 19C to ICTA.
Section 325: The pool of ring fence losses and the pool of non-qualifying Schedule 19B losses
1067.This section sets out how to determine the company’s pool of expenditure (the “ring fence pool”) for the purposes of post-commencement supplement. It is based on paragraph 19 of Schedule 19C to ICTA.
1068.The ring fence pool includes qualifying amounts carried forward from the pool determined under Schedule 19B to ICTA. The section also defines a non-qualifying pool which contains non-qualifying amounts carried forward under Schedule 19B to ICTA.
Section 326: The ring fence pool
1069.This section sets out how and when additions to and reductions of the ring fence pool are made. It is based on paragraph 20 of Schedule 19C to ICTA.
Section 327: Reductions in respect of utilised ring fence losses
1070.This section sets out how reductions in the two pools are to be made when a ring fence loss is utilised against profits. It is based on paragraph 21 of Schedule 19C to ICTA.
1071.The general rule is that when losses carried forward are set against profits in a later period, the non-qualifying pool is reduced first and the ring fence pool is then reduced by any balance of the loss after the non-qualifying pool has been reduced to nil.
Section 328: Reductions in respect of unrelieved group ring fence profits
1072.This section sets out how the expenditure eligible for supplement is to be reduced where there is an amount of unrelieved group ring fence profits. It is based on paragraph 22 of Schedule 19C to ICTA.
1073.The term “unrelieved group ring fence profits” is defined in section 313.
Section 329: The reference amount for a post-commencement period
1074.This section sets out how to determine the reference amount, the amount on which supplement is calculated, for the purposes of post-commencement supplement. It is based on paragraph 23 of Schedule 19C to ICTA.
