Section 67: Mineral Extraction Allowances: Activities Not Within the Charge to Tax
Summary
1.This section introduces legislation relating to the treatment of Mineral Extraction Allowances (MEAs) where the mineral extraction activity enters or ceases to be within the charge to UK tax. It ensures that the treatment of MEAs is certain and consistent between businesses and aligns with the existing principles for plant and machinery allowances. It also confirms that for the purposes of MEAs a mineral extraction trade consists of activity within the charge to UK tax.
Details of the Section
2.Subsections 2 to 6 amend, respectively, sections 394, 399, 160 and 161 of the Capital Allowances Act 2001 (CAA) to confirm that for the purposes of MEAs, a mineral extraction trade consists of activity that is within the charge to UK tax.
3.Subsection 7 inserts a new section 431A CAA to provide for the activity of an exempt foreign permanent establishment (FPE) to be treated as a separate mineral extraction trade for the purposes of MEAs.
4.Subsection 7 inserts a new section 431B CAA which provides transitional rules for MEAs similar to those for plant and machinery allowances. The transitional rules provide that where a disposal value is required to be brought into account this will not, in most cases, give rise to a balancing allowance or a balancing charge when a company elects into FPE exemption. However, for some assets, where the company’s qualifying expenditure exceeds £5 million, the normal disposal value will be brought into account for capital allowance purposes.
5.Subsection 7 inserts a new section 431C CAA which provides that notional capital allowances will be given automatically in calculating the profits or losses of the exempt FPE, as if the exempt FPE were within the charge to UK tax.
Background Note
6.This section is being introduced following consultation to confirm the treatment of MEAs where the mineral extraction activity enters or ceases to be within the charge to UK tax.
7.There are a number of changes to existing legislation:
To confirm that for the purposes of MEAs a mineral extraction trade consists of an activity that is within the charge to UK tax.
To confirm that the activity of an exempt FPE is treated as a separate mineral extraction trade for the purposes of MEAs.
To align the treatment of MEAs with the existing principles for plant and machinery allowances; and
to confirm that notional allowances will be given automatically in calculating the profits or losses of the exempt FPE as if the exempt FPE were within the charge to UK tax.
8.The amendments made by this section are treated as having come into force from 1 April 2014 for corporation tax and 6 April 2014 for income tax.