Section 183 Schedule 21: Relief in Respect of Decommissioning Expenditure
Summary
1.Section 183 and Schedule 21 restrict the relief available for decommissioning expenditure for Supplementary Charge (SC) purposes to 20 per cent. They do so by increasing the profits liable to the SC where decommissioning expenditure is taken into account in computing those profits. Where such expenditure reduces the amount of Petroleum Revenue Tax “PRT” chargeable the section also provides a reduction from profits liable to the SC where the profits resulting from the reduction in PRT would be subject to SC at a rate of more than 20 per cent. The schedule also provides that losses arising from mineral extraction allowances given in respect of decommissioning expenditure are brought within the scope of the provision which extends the periods for which loss relief may be given.
Details of the Schedule
2.Paragraph 1 provides that Part 8 of Corporation Tax Act 2010 (CTA 2010) is amended as provided by the following paragraphs of the Schedule.
3.Paragraph 2 amends section 330(2) of CTA 2010 to include a cross reference to sections 330A and 330B.
4.Paragraph 3 inserts into CTA 2010:
New section 330A (‘decommissioning expenditure taken into account in calculating ring fence profits’),
New section 330B (‘decommissioning expenditure taken into account for PRT purposes’), and
New section 330C (‘meaning of ‘decommissioning expenditure’’)
5.New section 330A(1) provides that section 330A applies where:
any decommissioning expenditure is taken into account in calculating the profit or loss of any ring fence trade or loss surrendered to the company, and
if that expenditure were not taken into account the amount of the adjusted ring fence profits for the accounting period would be greater than nil.
6.New section 330A(2) provides that an amount equal to the appropriate fraction of the used-up amount of that expenditure is added to the adjusted ring fence profits for the accounting period.
7.New section 330A(3) defines ‘the appropriate fraction’ and ‘the used-up amount’.
8.New section 330A(4) provides that in establishing the extent to which any losses which have been taken into account are attributable to decommissioning expenditure:
any other amounts which could be taken into account in calculating those losses are assumed to be taken into account before any amounts of decommissioning expenditure, and
where any group relief has been surrendered, the various companies concerned must specify whether any of those losses is attributable to decommissioning expenditure.
9.New section 330A(5) provides that a company can elect for section 330A(4)(a) not to apply if that paragraph would work unfavourably in the company’s case, and for any amounts instead to be taken into account in the order specified in the election.
10.New section 330A(6) provides that in determining the used-up amount, any other amounts that could be deducted in calculating the adjusted ring fence profits are assumed to have already been so deducted.
11.New section 330A(7) provides that a company can elect for subsection (6) not to apply if it would work unfavourably in the company’s case, and for any amounts instead to be deducted in the order specified in the election.
12.New section 330A(8) provides that for the purposes of this section, any deduction made under section 330B is to be disregarded.
13.New section 330A(9) provides that section 330A does not apply to any accounting period (including any accounting period beginning before 24 March 2011 and ending on or after that date) for which the rate of SC is less than or equal to 20 per cent.
14.New section 330A(10) provides that ‘claimant company’ and ‘surrendering company’ take their meaning from chapter 5, and ‘decommissioning expenditure’ is as defined by section 330C.
15.New section 330B(1) provides that the section applies where:
any decommissioning expenditure is taken into account in calculating the assessable profit of a participator in any chargeable period from an oil field, and
if that expenditure were not taken into account, some PRT would be chargeable on the participator for the chargeable period.
16.New section 330B(2) provides that an amount equal to the appropriate fraction of the PRT difference is deducted in calculating the amount of the participator’s adjusted ring fence profits for the relevant accounting period.
17.New section 330B(3) defines ‘the appropriate fraction’ and ‘the PRT difference’.
18.New section 330B(4) provides that in determining the extent to which any allowable losses taken into account in calculating the assessable profit are attributable to decommissioning expenditure, any amounts of any other expenditure which could be taken into account in calculating those losses are assumed to be taken into account before any amounts of decommissioning expenditure.
19.New section 330B(5) provides that a participator may elect for subsection (4) not to apply if that subsection would work unfavourably 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.
20.New section 330B(6) provides that section 330B does not apply to any accounting period (including any accounting period beginning before 24 March 2011 and ending on or after that date) for which the rate of SC is less than or equal to 20 per cent.
21.New section 330B(7) defines ‘assessable profit’, allowable loss’, ‘decommissioning expenditure’ and ‘the relevant accounting period’ for the purposes of this section.
22.New section 330C(1) defines ‘decommissioning expenditure’ for the purposes of sections 330A and 330B.
23.New section 330C(2) clarifies the interpretation of section 330C(1)(b).
24.New section 330C(3) clarifies the interpretation of sections 330C(1)(c) and (d).
25.New section 330C(4) extends the scope of section 330C(1)(e).
26.New section 330C(5) provides that the Treasury may amend section 330C by secondary legislation.
27.New section 330C(6) provides that an order under subsection (5) may include transitional provision and savings.
28.Paragraph 4 amends section 7 of FA 2011 to include a cross-reference to sections 330A and 330B.
29.Paragraph 5(1) provides that section 40 CTA 2010 is amended as provided by the following sub-paragraphs.
30.Paragraph 5(2) amends section 40(1)(b) to include a reference to allowances under section 403 CAA 2001 made to a company in respect of decommissioning expenditure.
31.Paragraph 5(3) makes consequential changes.
32.Paragraph 5(4) inserts a new section 40(3A) which provides the meaning of ‘decommissioning expenditure’ in section 40.
33.Paragraph 6(1) provides that the amendments made by the Schedule have effect for expenditure incurred in connection with decommissioning carried out on or after 21 March 2012.
34.Paragraph 6(2) provides the meaning of ‘decommissioning’ in paragraph 6(1).
Background Note
35.Effective from 24 March 2011, the rate of Supplementary Charge increased from 20 per cent to 32 per cent.
36.Budget 2011 also announced that legislation would be introduced in Finance Act 2012, with effect from Budget 2012, to restrict the rate of tax relief for decommissioning expenses to 20 per cent for Supplementary Charge purposes.
37.The Schedule seeks to ensure that the principles governing the restriction of decommissioning relief are applied consistently to PRT and non-PRT fields.
38.The Schedule also seeks to provide consistency of treatment of decommissioning expenditure with regard to the restriction of relief and the access to the extended period for which losses can be carried back.
