Part 1 – Amendments of Part 8 of Corporation Tax Act 2010 (CTA 2010)
3.Paragraph 1 provides that the Schedule amends part 8 of CTA 2010 (oil activities)
4.Paragraph 2 inserts, after Chapter 6, a new Chapter 6A entitled Supplementary Charge: Investment Allowance which makes provision for a new allowance (reducing the supplementary charge) for investment expenditure incurred in relation to a qualifying oil field.
5.New section 332A provides an overview of new Chapter 6A
6.New section 332B defines “qualifying oil field” as an oil field that is not wholly or partly included in a cluster area.
7.New section 332BA defines “investment expenditure” as expenditure incurred that is capital expenditure or expenditure as prescribed by HM Treasury by regulations.
8.New section 332C provides for how investment allowance is generated by participators in a qualifying oil field, including that “relievable” investment expenditure (as defined by reference to activities in the course of which it is incurred) generates an allowance of 62.5% of that amount, and that allowance is generated in relation to a qualifying oil field. It also provides for restrictions on relievable expenditure, and for cases where relievable investment expenditure is incurred only partly for the purposes of oil-related activities, or is incurred only partly in relation to a particular qualifying oil field; in both cases the expenditure is to be apportioned to the activities or field concerned on a just and reasonable basis.
9.New section 332CA provides for including expenditure incurred on or after 1 April 2015 in relation to a field before it is determined, if the area subsequently becomes an oil field. The amount is treated as incurred at the time the field is determined.
10.New section 332D provides the disqualifying conditions for expenditure on the acquisition of an asset. Investment expenditure is not relievable if it is incurred in relation to the acquisition of an asset, which has already generated allowance for any company, or for expenditure on the acquisition of a licence, and any connected assets, that would have been relievable had investment allowance legislation been in place.
11.New section 332DA provides that investment expenditure incurred in relation to a field which previously qualified for field allowance as a new field is not relievable expenditure unless
the cumulative total relevant expenditure attributable to the company’s share of the equity exceeds the relevant field threshold, as defined; or
the expenditure plus the total above exceeds the relevant field threshold, as defined; or
the expenditure is incurred on or after the material completion date as determined by the Secretary of State; or
at the time the expenditure is incurred, the company is not a licensee in the oil field and the expenditure is incurred in making an asset available in a way which gives rise to tariff, or tax exempt tariffing, receipts.
12.New section 332DB provides that investment expenditure incurred in relation to a project in an additionally-developed oil field is not relievable expenditure unless
the cumulative total relevant expenditure attributable to the company’s share of project related reserves exceeds the relevant project threshold, as defined; or
the expenditure plus the total above exceeds the relevant project threshold, as defined; or
the expenditure is incurred on or after the material completion date as determined by the Secretary of State; or
at the time the expenditure is incurred, the company does not hold a share of project related reserves and the expenditure is incurred in making an asset available in a way which gives rise to tariff, or tax exempt tariffing receipts.
13.New section 332DC provides that expenditure incurred relating to fields qualifying for onshore allowance is not relievable expenditure.
14.New section 332E provides for a company’s adjusted ring fence profits for an accounting period to be reduced (but not below zero) by the cumulative total amount of activated allowance in that period.
15.New section 332EA provides that a company’s unused activated allowance is carried forward to the next accounting period.
16.New section 332F provides for the calculation of a company’s activated allowance in an accounting period where there is no change in the company’s equity share in the oil field, being the smaller of the closing balance of unactivated allowance, the relevant income from that oil field or, for additionally developed oil fields, the relevant activation limit. The company must hold a closing balance of unactivated allowance greater than zero and have relevant income from the qualifying oil field. “Relevant income” is also defined in this section as production income from oil extraction activities.
17.New section 332FA provides for the calculation of the closing balance of unactivated allowances held by a company for an accounting period.
18.New section 332FB provides for a “relevant activation limit” in respect of additionally-developed oil fields for the purposes of calculating the amount of activated allowance for an accounting period.
19.New section 332FC provides for the calculation of the carrying forward of unactivated allowance.
20.New section 332G introduces and defines reference periods where a company’s share of equity in a qualifying oil field changes in any one accounting period. The accounting period is divided into as many reference periods as is necessary according to the acquisitions and disposals made by the company in the qualifying oil field.
21.New section 332H provides for the calculation of a company’s activated allowance in any reference period, being the smaller of either the relevant income in the reference period, the total amount of unactivated allowance attributable to that reference period, or for additionally-developed oil fields, the relevant activation limit.
22.New section 332HA provides for the calculation of the total amount of unactivated allowances attributable to a reference period and a qualifying oil field. This is allowance generated in the reference period (including transfer of allowance following an acquisition of equity share) and the amount carried forward from preceding periods.
23.New section 332HB provides that an amount equal to the amount of unactivated allowance attributable to the reference period, less activated allowance for the period and any amount transferred out following a disposal is to be carried forward to the next period.
24.New section 332I introduces the transfers of allowance on disposal of equity share under certain conditions.
25.New section 332IA provides the calculation for the reduction in the amount of unactivated investment allowance if equity is disposed of and for a reduction in the amount of cumulative total relevant expenditure attributable to its share of equity in the field.
26.New section 332IB provides the calculation for the acquisition of the amount of unactivated investment allowance if equity is acquired and for the acquisition of an amount of cumulative total relevant expenditure attributable to its share of equity in the field.
27.New section 332J provides that any alteration to a company’s ring fence profits is reflected in the operation and calculations of Chapter 6A.
28.New section 332JA provides that HM Treasury may by regulation change the percentage mentioned in 332C(2), 332DA(4) or 332DB(4).
29.New section 332K explains when capital expenditure can be said to be incurred for the purposes of Chapter 6A and provides that any regulations made on the meaning of investment expenditure may make provisions about when that expenditure is incurred.
30.New section 332KA provides interpretation on definitions for “adjusted ring fence profits”, “cumulative total amount of activated allowance”, “investment allowance” “licence”, “licensee”, and “relevant income”.
31.Paragraph 3 provides for the omission of Chapter 7 (reduction of supplementary charge for eligible oil fields).
