(1) Sections 135 to 156 enable a balancing charge that arises when there is a disposal event in respect of a ship to be deferred and attributed to qualifying expenditure on another ship.
(2) In this Chapter “the deferment rules” means sections 135 to 156.
(1) A person (“the shipowner”) who is liable to a balancing charge for a chargeable period may claim deferment of all or part of the charge if—
(a) in the chargeable period there is a disposal event (“the relevant disposal event”) in respect of a ship (“the old ship”),
(b) the old ship—
(i) was provided for the purposes of a qualifying activity carried on by the shipowner, and
(ii) was owned by the shipowner at some time in the chargeable period, and
(c) the conditions in section 136 are met.
(2) The amount which may be deferred is subject to the limit in section 138.
(3) For income tax purposes, a claim for deferment must be made on or before the normal time limit for amending a tax return for the tax year in which the relevant chargeable period ends.
(4) “The relevant chargeable period” means the chargeable period for which the shipowner is liable to the balancing charge.
(5) For corporation tax purposes, Part IX of Schedule 18 to FA 1998 applies in relation to the making of a claim for deferment as it applies in relation to the making of a claim for an allowance.
The conditions referred to in section 135(1)(c) are that—
(a) the relevant disposal event is of a kind mentioned in section 61(1)(a) to (d) (cessation of ownership, loss, abandonment, destruction etc. of ship),
(b) the old ship was a qualifying ship immediately before the relevant disposal event,
(c) the shipowner has not incurred a loss in respect of the qualifying activity for the chargeable period for which he is liable to the balancing charge, and
(d) no amount in respect of the old ship has been allocated to—
(i) the overseas leasing pool,
(ii) a single asset pool under section 206 (plant or machinery provided or used partly for purposes other than those of the qualifying activity),
(iii) a single asset pool under section 211 (payment of partial depreciation subsidy), or
(iv) a pool for a qualifying activity consisting of special leasing.
A claim for deferment is given effect by allocating the amount deferred, for the chargeable period in respect of which the claim is made, to the appropriate non-ship pool.
(1) The amount deferred must not exceed the smallest of the following amounts—
(a) the amount of any balancing charge which, if the claim for deferment had not been made, would have been made for the chargeable period for which deferment is claimed in the appropriate non-ship pool;
(b) the amount given by section 139 (amount taken into account in respect of the old ship);
(c) the amount which is, or is expected to be, the amount of expenditure on new shipping incurred—
(i) by the shipowner or, if the shipowner is a company, by another company which is a member of the same group at the time when the expenditure is incurred, and
(ii) within the period of 6 years beginning with the relevant disposal event;
(d) the amount of the shipowner’s profits or income from the qualifying activity for the chargeable period for which deferment is claimed.
(2) In determining profits or income for the purposes of subsection (1)(d)—
(a) any other amounts deferred under section 135 are to be taken into account, and
(b) any amounts brought forward under section 83 of ITA 2007 or section 45, 45A or 45B of CTA 2010 (losses) are to be disregarded.
139 Amount taken into account in respect of old ship
(1) The amount taken into account in respect of the old ship for the purposes of section 138(1)(b) is—
(a) amount A, if no election has been made under section 129 (election to use appropriate non-ship pool) in respect of any of the qualifying expenditure incurred on the provision of the ship, or
(b) amount B, in any other case.
(2) Amount A is the amount which falls to be brought into account as a disposal value in the appropriate non-ship pool under section 132(2)(b) as a result of the relevant disposal event, less the available qualifying expenditure allocated to the appropriate non-ship pool under section 132(2)(a).
(3) Amount B is—
DV
-
(
QE
-
WDA
-
FYA
)
where—
DV is the amount of the disposal value required to be brought into account in respect of the old ship,
QE is all the qualifying expenditure incurred in respect of the old ship,
WDA is the maximum amount of any writing-down allowances which (on the assumptions in subsection (4)) could have been made in respect of that qualifying expenditure for chargeable periods up to (but not including) the one in respect of which the claim for deferment is made, and
FYA is the total of any first-year allowances actually made or postponed in respect of the old ship.
(4) The assumptions are that—
(a) all the qualifying expenditure in respect of the old ship is (and has always been) allocated to the appropriate non-ship pool, and
(b) no other qualifying expenditure has been allocated to that pool.
(5) If an election is made under section 129 (election to use appropriate non-ship pool) after the determination under this section of the amount taken into account in respect of the old ship, the amount is, and is treated as always having been, amount B and not amount A.
140 Notice attributing deferred amounts to new expenditure
(1) The shipowner may, by notice to an officer of Revenue and Customs, attribute all or part of an amount deferred under section 135 to expenditure on new shipping.
(2) An amount attributed under this section is attributed to an equal amount of the expenditure on new shipping.
(3) Subsection (1) is subject to subsections (4) and (5) and section 141 (deferred amounts attributed to earlier expenditure first).
(4) Subsection (1) applies only if the expenditure on new shipping is incurred—
(a) by the shipowner or, if the shipowner is a company, by another company which is a member of the same group at the time when the expenditure is incurred, and
(b) within the period of 6 years beginning with the relevant disposal event.
(5) An amount may be attributed to expenditure on new shipping only to the extent that amounts have not already been attributed to it under this section.
(6) A notice given in respect of expenditure incurred by another company does not have effect unless the other company joins the shipowner in giving it.
141 Deferred amounts attributed to earlier expenditure first
(1) No part of an amount deferred under section 135 is to be attributed to the whole or a part of any expenditure on new shipping (“the current expenditure”) if there is other expenditure (“the earlier expenditure”) which—
(a) was incurred before the current expenditure but at the same time as or after the relevant disposal event,
(b) was incurred by the shipowner or, if the shipowner is a company, by another company which was a member of the same group at the time the earlier expenditure was incurred, and
(c) is expenditure on new shipping, or would be treated as such but for an election under section 129 (election to use appropriate non-ship pool),
unless the condition in subsection (2) is met in relation to the earlier expenditure.
(2) The condition is that—
(a) amounts have been attributed to all the earlier expenditure under section 140, and
(b) the attributions have been made in the case of the amount deferred and any other amounts deferred under section 135 as a result of disposal events occurring at the same time as or before the relevant disposal event.
(1) The shipowner may, by notice, vary an attribution under section 140 (notice attributing deferred amounts to new expenditure).
(2) The notice must be given to an officer of Revenue and Customs on or before the time limit for the shipowner to make a claim for deferment in respect of the relevant chargeable period.
(3) For the time limit for making a claim for deferment, see section 135(3) to (5).
(4) For the purposes of subsection (2), it is to be assumed that—
(a) the shipowner is liable to a balancing charge for the relevant chargeable period, and
(b) a claim for deferment of that balancing charge can be made for the relevant chargeable period.
(5) “The relevant chargeable period” means the earliest chargeable period in which expenditure to which the variation relates is incurred.
(6) If the person to whose expenditure the notice relates is not the shipowner, a notice under subsection (1) does not have effect unless the person joins the shipowner in giving it.
(1) This section applies if a notice is given under section 140 attributing an amount to expenditure on new shipping.
(2) The amount must be brought into account as a disposal value—
(a) for the chargeable period in which the expenditure is incurred, and
(b) in the single ship pool to which the expenditure is allocated.
(1) This section applies if—
(a) an amount has been deferred under section 135, and
(b) circumstances arise in which any part of the amount ceases (otherwise than by being attributed) to be attributable.
(2) The shipowner is assumed not to have been entitled to defer so much of the amount as ceases to be attributable.
(3) For the purposes of this section an amount is attributable if it may be attributed to expenditure on new shipping in accordance with section 140.
145 Requirement to notify where no entitlement to defer amounts
(1) This section applies if—
(a) an amount has been deferred under section 135, and
(b) circumstances arise that require the shipowner to be treated as if he was not entitled to defer all or part of the amount.
(2) The shipowner must give notice of the fact to an officer of Revenue and Customs, specifying the circumstances.
(3) The notice must be given no later than 3 months after the end of the chargeable period in which the circumstances first arise.
(4) An assessment to tax chargeable as a result of the circumstances may be made at any time in the period which—
(a) begins when those circumstances arise, and
(b) ends 12 months after the shipowner gives notice of them to an officer of Revenue and Customs.
(5) Subsection (4) applies in spite of any limitation on the time for making assessments.
(1) For the purposes of the deferment rules, expenditure on the provision of a ship is expenditure on new shipping if the conditions in subsection (3) are met.
(2) Subsection (1) is subject to sections 147 to 150.
(3) The conditions are that—
(a) the expenditure is qualifying expenditure incurred by a person wholly and exclusively for the purposes of a qualifying activity carried on by him,
(b) when the expenditure is incurred, it appears that the ship will—
(i) be brought into use for the purposes of the qualifying activity as a qualifying ship, and
(ii) continue to be a qualifying ship for at least 3 years after that, and
(c) the expenditure is allocated to a single ship pool.
(1) Expenditure on the provision of a ship is not expenditure on new shipping if the person who incurred the expenditure—
(a) has already owned the ship in the period of 6 years ending with the time when he first owns it as a result of incurring the expenditure, or
(b) was connected at a material time with a person who owned the ship at any time during that period.
(2) For this purpose a material time is—
(a) the time when the expenditure was incurred, or
(b) any earlier time in the 6 year period beginning with the relevant disposal event.
Expenditure on the provision of a ship is not expenditure on new shipping if the object, or one of the main objects, of—
(a) the transaction by which the ship was provided for the purposes of a qualifying activity carried on by the person who incurred the expenditure,
(b) any series of transactions of which that transaction was one, or
(c) any transaction in such a series,
was to secure the deferment of a balancing charge under section 135.
(1) Expenditure on the provision of a ship is not, and is treated as never having been, expenditure on new shipping if—
(a) at a time during the period mentioned in subsection (2), the ship is not a qualifying ship,
(b) the expenditure is allocated to a pool as a result of an election under section 129 (election to use appropriate non-ship pool), or
(c) section 107 applies in relation to the expenditure (overseas leasing).
(2) The period referred to in subsection (1)(a) is—
(a) the period of 3 years beginning with the time when the ship is first brought into use for the purposes of a qualifying activity carried on—
(i) by the person (“A”) who incurred the expenditure, or
(ii) if earlier, by a person connected with A, or
(b) if shorter, the period beginning with that time and ending when neither A nor a person connected with A owns the ship.
150 Exclusions where expenditure not incurred by shipowner
(1) Expenditure on the provision of a ship is not, and is treated as never having been, expenditure on new shipping if—
(a) it is incurred by a company which is a member of the same group as the shipowner at the time when the expenditure is incurred, and
(b) subsection (2) or (4) applies.
(2) This subsection applies (subject to subsection (3)) if—
(a) the ship ceases to be owned by the company before it has been brought into use for the purposes of a qualifying activity carried on by the company, or
(b) a disposal event occurs in respect of the ship within 3 years of its first being brought into use for the purposes of a qualifying activity carried on by the company.
(3) But subsection (2) does not apply if the event which would otherwise result in that subsection applying is, or is the result of, the total loss of the ship or irreparable damage to it.
(4) This subsection applies if—
(a) after the expenditure is incurred, there is a time when the company and the shipowner are not members of the same group, and
(b) if the ship is brought into use for the purposes of a qualifying activity carried on by the company, that time is within 3 years of the ship first being so brought into use.
(5) A time falling after the total loss of the ship or irreparable damage to it is to be disregarded for the purposes of subsection (4).
(6) In this section “irreparable damage”, in relation to a ship, means damage that puts it in a condition in which it is impossible, or not commercially worthwhile, to undertake the repairs required for restoring it to its previous use.
(1) For the purposes of the deferment rules, a ship is a qualifying ship if it is—
(a) of a sea-going kind, and
(b) registered as a ship with a gross tonnage of 100 tons or more in a register of shipping established and maintained under the law of any country or territory.
(2) This is subject to sections 152 to 154.
(1) This section applies if the relevant disposal event is, or results from—
(a) the total loss of the old ship, or
(b) damage to the old ship that puts it in a condition in which it is impossible, or not commercially worthwhile, to undertake the repairs required for restoring it to its previous use.
(2) A registered ship may be a qualifying ship for the purposes of—
(a) section 136(b) (further conditions for deferment), or
(b) sections 146(3)(b) and 149(1)(a) (expenditure on new shipping),
even if it is not registered as a ship with a gross tonnage of 100 tons or more.
(3) In subsection (2) “registered ship” means a ship registered in a register of shipping established and maintained under the law of any country or territory.
(1) A ship is not a qualifying ship if the primary use to which ships of the same kind as that ship are put—
(a) by the persons who own them, or
(b) by others to whom they are made available,
is use for sport or recreation.
(2) A ship is not a qualifying ship at any time when it is an offshore installation.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) If—
(a) a person (“A”) has incurred expenditure on the provision of a ship, and
(b) there is a time in the qualifying period, but more than 3 months after the beginning of that period, when the ship is not registered in a relevant register,
the ship is not a qualifying ship after that time.
(2) The qualifying period is—
(a) the period of 3 years beginning with the time when the ship is first brought into use for the purposes of a qualifying activity carried on—
(i) by A, or
(ii) if earlier, by a person connected with A, or
(b) if shorter, the period beginning with that time and ending when neither A nor a person connected with A owns the ship.
(3) In determining the qualifying period for the old ship, a qualifying activity carried on at any time by a person (“B”) is taken to be carried on at that time by a person connected with A if—
(a) it is subsequently carried on by A or a person connected with A, and
(b) the only changes in the persons carrying it on between the time that B does so and the time that A or a person connected with A does so are changes—
(i) which do not involve all of the persons carrying it on before the changes permanently ceasing to carry it on, or
(ii) in respect of which the qualifying activity is treated as continuing under section 948 of CTA 2010.
(4) In this section “relevant register” means a register of shipping established and maintained—
(a) under the laws of any part of the British Islands, or
(b) under the laws of any country or territory which, at a time in the qualifying period for the ship, is an EEA State or a colony.
(5) “EEA State” means a State which is a contracting party to the Agreement on the European Economic Area signed at Oporto on 2nd May 1992 as adjusted by the Protocol signed at Brussels on 17th March 1993 (except that for the period before the Agreement came into force in relation to Liechtenstein it does not include the State of Liechtenstein).
155 Change in the persons carrying on the qualifying activity
(1) This section applies if—
(a) a person is carrying on the qualifying activity previously carried on by the shipowner, and
(b) the only changes in the persons carrying on the qualifying activity since the shipowner carried it on are changes—
(i) which do not involve all of the persons carrying it on before the changes permanently ceasing to carry it on, or
(ii) in respect of which the qualifying activity is treated as continuing under section 948 of CTA 2010.
(2) For the purposes of the deferment rules—
(a) expenditure incurred by a person mentioned in subsection (1)(a) for the purposes of the qualifying activity is to be treated as incurred by the shipowner, and
(b) in relation to the giving of any notice, a reference to the shipowner is to be read as a reference to the person carrying on the qualifying activity when the notice is given or is required to be given.
(1) For the purposes of the deferment rules a person (“B”) is connected with another person (“A”) at any time if, at that time—
(a) B is connected (in the sense given in section 575) with A,
(b) B is carrying on a qualifying activity previously carried on by A and the condition in subsection (2) is met, or
(c) B is connected (in the sense given in section 575) with a person who is carrying on a qualifying activity previously carried on by A and the condition in subsection (2) is met.
(2) The condition is that the only changes in the persons carrying on the qualifying activity since A carried it on are changes—
(a) which do not involve all of the persons carrying it on before the changes permanently ceasing to carry it on, or
(b) in respect of which the qualifying activity is treated as continuing under section 948 of CTA 2010.
(3) If expenditure is incurred by a person who is not the shipowner, the persons connected with him at any time include any person connected with the shipowner at that time as a result of subsection (1).
(1) All such assessments and adjustments of assessments are to be made as are necessary to give effect to this Chapter.
(2) Subsection (1) does not apply for the purposes of section 145 (see instead section 145(4) and (5)).
For the purposes of this Chapter two companies are members of the same group at any time if they would be treated as members of the same group of companies at that time for the purposes of Part 5 of CTA 2010 (group relief).
160 Expenditure treated as incurred for purposes of mineral extraction trade
(1) For the purposes of this Part, expenditure incurred by a person—
(a) on the provision of plant or machinery for mineral exploration and access, and
(b) in connection with a mineral extraction trade carried on by him,
is to be treated as incurred for the purposes of that trade.
(2) Subsection (1) does not apply to expenditure if—
(a) when it is incurred, the person is carrying on the trade but the trade is not at that time a mineral extraction trade, or
(b) when it is incurred, the person has not begun to carry on the trade and, when the person begins to carry on the trade, the trade is not a mineral extraction trade.
(3) Section 577(2) (references to commencement etc of a trade) does not apply to subsection (2).
161 Pre-trading expenditure on mineral exploration and access
(1) This section applies if a person—
(a) incurs pre-trading expenditure on the provision of plant or machinery for the purposes of mineral exploration and access, and
(b) owns the plant or machinery on the first day of trading.
But this is subject to subsection (5).
(2) The person is to be treated for the purposes of this Part as if he had—
(a) sold the plant or machinery immediately before the first day of trading, and
(b) on that first day incurred capital expenditure on the provision of the plant or machinery for the purposes of the trade.
(3) The amount of the capital expenditure that the person is to be treated as having incurred is an amount equal to—
(a) the pre-trading expenditure, or
(b) if there has been an actual sale and re-acquisition before the first day of trading, the amount last incurred on the provision of the plant or machinery.
(4) In this section—
(a) “pre-trading expenditure” means capital expenditure incurred before the day on which a person begins to carry on a trade that is a mineral extraction trade, but only if there is no prior time when the person carried on that trade and the trade was not a mineral extraction trade,
(b) “the first day of trading”, in relation to a person’s pre-trading expenditure, means the day on which that person begins to carry on the mineral extraction trade.
(4A) Section 577(2) (references to commencement etc of a trade) does not apply to subsection (4)(a).
(5) This section does not apply if the plant or machinery on which the pre-trading expenditure was incurred is sold, demolished, destroyed or abandoned before the first day of trading (but see section 402 (mineral extraction allowances: pre-trading expenditure on plant or machinery)).
(1) In sections 161C and 161D “ offshore infrastructure ” means—
(a) an offshore installation within the meaning given by section 44 of the Petroleum Act 1998 (c. 17) or a part of such an installation, or
(b) something that would be, or would be a part of, an offshore installation within that meaning if in subsection (3) of that section “ relevant waters ” meant waters in a foreign sector of the continental shelf and other foreign tidal waters, or
(c) a pipeline within the meaning of section 26 of that Act, or a part of such a pipeline, that is in, under or over waters in—
(i) the territorial sea adjacent to the United Kingdom, or
(ii) an area designated under section 1(7) of the Continental Shelf Act 1964 (c. 29), or
(d) a pipeline within the meaning of section 26 of the Petroleum Act 1998 (c. 17), or a part of such a pipeline, that is in, under or over waters in a foreign sector of the continental shelf.
(2) In subsection (1)(b) and (d)—
“ foreign sector of the continental shelf ” means an area within which rights are exercisable with respect to the sea bed and subsoil and their natural resources by a country or territory outside the United Kingdom;
“ foreign tidal waters ” means tidal waters in an area within which rights are exercisable with respect to the bed and subsoil of the body of water in question and their natural resources by a country or territory outside the United Kingdom.
(1) In sections 161C and 161D “ decommissioning expenditure ” means expenditure in connection with—
(a) preserving plant or machinery pending its reuse or demolition,
(b) preparing plant or machinery for reuse, or
(c) arranging for the reuse of plant or machinery.
(2) It is immaterial for the purposes of subsection (1)(a) whether the plant or machinery is reused, is demolished or is partly reused and partly demolished.
(3) It is immaterial for the purposes of subsection (1)(b) and (c) whether the plant or machinery is in fact reused.
161C Expenditure related to reuse etc. qualifies for writing-down allowances
(1) This section applies where—
(a) a person carrying on a trade of oil extraction incurs decommissioning expenditure, and
(b) the plant or machinery concerned—
(i) has been brought into use for the purposes of the trade, and
(ii) is, or was when last in use for those purposes, offshore infrastructure.
(2) The decommissioning expenditure is allocated to the appropriate pool for the chargeable period in which it is incurred.
(3) Subsection (2) is subject to sections 161D, 164(4) and 165A to 165E.
(4) In subsection (2) “ the appropriate pool ” means the pool to which the expenditure on the plant or machinery concerned has been or would be allocated in accordance with this Part.
(1) Subsection (2) of section 161C does not apply to decommissioning expenditure on UK infrastructure unless it is incurred in connection with measures taken, wholly or substantially, in order to comply with—
(a) an abandonment programme within the meaning given by section 29 of the Petroleum Act 1998 (c. 17), or
(b) any condition to which the approval of such a programme is subject.
(2) Subsection (2) of section 161C does not apply to expenditure in respect of which an allowance or deduction could be made apart from that subsection in taxing, or computing, the person’s income for any tax purpose.
(3) For the purposes of subsection (1), decommissioning expenditure is “ on UK infrastructure ” if the plant or machinery concerned—
(a) is offshore infrastructure within section 161A(1)(a) or (c), or
(b) is not offshore infrastructure but was offshore infrastructure within section 161A(1)(a) or (c) when last in use for the purposes of the trade.
162 Ring fence trade a separate qualifying activity
(1) If a person carries on a ring fence trade, it is a separate qualifying activity for the purposes of this Part.
(2) In this Chapter “ring fence trade” means activities which—
(a) fall within the definition of “oil-related activities” in section 16(2) of ITTOIA 2005 or section 274 of CTA 2010, and
(b) constitute a separate trade (whether as a result of section 16(1) of ITTOIA 2005 or section 16(1) of ITTOIA 2005 or section 279 of CTA 2010 or otherwise).
163 Meaning of “general decommissioning expenditure”
(1) Expenditure is “general decommissioning expenditure” for the purposes of sections 164 and 165 if
(a) the conditions in subsections (3), (3A) and (4) are met, ...
(aa) the condition in subsection (3AB) is met, or
(b) the conditions in subsections (3B) and (4) are met.
(2) But paragraphs (a) and (b) of subsection (1) are subject to subsections (4ZA) to (4ZC).
(3) The expenditure must have been incurred on decommissioning plant or machinery—
(a) which has been brought into use wholly or partly for the purposes of a ring fence trade, and
(b) which—
(i) is, or forms part of, an offshore installation or a submarine pipeline, or
(ii) when last in use for the purposes of a ring fence trade, was, or formed part of, such an installation or pipeline.
(3A) The expenditure must have been incurred wholly or substantially ...—
(a) in complying with an approved abandonment programme,
(b) in complying with a condition to which the approval of an abandonment programme is subject, ...
(c) in complying with a condition imposed by the Secretary of State, or an agreement made with the Secretary of State—
(i) before the approval of an abandonment programme, and
(ii) in relation to the decommissioning of the plant or machinery, or
(d) otherwise in anticipation of a decommissioning measure.
(3AA) For the purposes of subsection (3A)(d), expenditure is incurred otherwise in anticipation of a decommissioning measure if it is incurred—
(a) in preserving plant or machinery, the reuse or demolition of which it is reasonable to anticipate will be authorised or required by an approved abandonment programme, a condition to which the approval of such a programme will be subject or a condition or agreement described in subsection (3A)(c), or
(b) in doing something else which it is reasonable to anticipate will be authorised or required by an approved abandonment programme, a condition to which the approval of such a programme will be subject or a condition or agreement described in subsection (3A)(c).
(3AB) The condition in this subsection is met if—
(a) the expenditure was incurred—
(i) in preparing an abandonment programme for approval, or
(ii) in preparing for the imposition of a condition by, or the making of an agreement with, the Secretary of State before the approval of an abandonment programme, and
(b) it is reasonable to anticipate that the approved abandonment programme, the condition imposed or the agreement made, as the case may be, will wholly or mainly relate to the decommissioning of plant or machinery to which subsection (3) applies.
(3B) The expenditure must have been incurred on decommissioning plant or machinery—
(a) which has been brought into use wholly or partly for the purposes of a ring fence trade, and
(b) which—
(i) is, or forms part of, a relevant onshore installation, or
(ii) when last in use for the purposes of a ring fence trade, was, or formed part of, such an installation.
(3C) In subsection (3B) “relevant onshore installation” means any building or structure which—
(a) falls within any of sub-paragraphs (ii) to (iv) of section 3(4)(c) of OTA 1975,
(b) is not an offshore installation, and
(c) is or has been used for purposes connected with the winning of oil from an oil field any part of which lies within—
(i) the boundaries of the territorial sea of the United Kingdom, or
(ii) an area designated under section 1(7) of the Continental Shelf Act 1964.
(4) The plant or machinery must not be replaced.
(4ZA) An amount of general decommissioning expenditure determined in accordance with subsection (1)(a) or (b) is to be reduced under subsection (4ZB) if it appears that the decommissioned plant and machinery—
(a) was not brought into use wholly for qualifying purposes, or
(b) has, at any time since it was brought into use, not been used wholly for qualifying purposes.
(4ZB) The amount determined in accordance with subsection (1)(a) or (b) is to be reduced to an amount which is just and reasonable having regard to the relevant circumstances.
(4ZC) The relevant circumstances include, in particular, the extent to which the decommissioned plant and machinery has not been used for qualifying purposes.
(4A) In this section “ decommissioning ”, in relation to any plant or machinery, means—
(a) demolishing the plant or machinery,
(b) preserving the plant or machinery pending its reuse or demolition,
(c) preparing the plant or machinery for reuse, or
(d) arranging for the reuse of the plant or machinery.
(4B) In determining whether expenditure is incurred on preserving plant or machinery pending its reuse or demolition, it is immaterial whether the plant or machinery is reused, is demolished or is partly reused and partly demolished.
(4C) In determining whether expenditure is incurred on preparing plant or machinery for reuse, or on arranging for the reuse of plant or machinery, it is immaterial whether the plant or machinery is in fact reused.
(4D) In this section a reference to use for qualifying purposes is a reference to—
(a) use for the purposes of any ring fence trade of any person, or
(b) other use in—
(i) the United Kingdom,
(ii) the territorial sea of the United Kingdom, or
(iii) an area designated under section 1(7) of the Continental Shelf Act 1964,
except use wholly or partly in connection with an oil field (within the meaning given by section 12(2) of the Oil Taxation Act 1975).
(5) In this section—
(a) “oil” and “oil field” have the same meaning as in Part I of OTA 1975, and
(b) “abandonment programme”, “approval” and “approved” (in relation to an abandonment programme), ... “offshore installation” and “submarine pipeline” have the same meaning as in Part IV of the Petroleum Act 1998 (c. 17).
163A Expenditure in anticipation of approval of abandonment programme
(1) Expenditure to which section 163(3A)(d) applies by virtue of section 163(3AA)(b) is to be treated as never having been general decommissioning expenditure for the purposes of sections 164 and 165 unless, before the end of the relevant period, condition A or condition B is met in relation to the expenditure.
(2) Condition A is that—
(a) an abandonment programme is approved, and
(b) the programme, or a condition to which the approval of the programme was subject, authorises or requires the decommissioning of the plant or machinery to which the expenditure relates.
(3) Condition B is that—
(a) a condition is imposed by the Secretary of State, or an agreement is made with the Secretary of State, before the approval of an abandonment programme, and
(b) the condition or, as the case may be, the agreement authorises or requires the decommissioning of the plant or machinery to which the expenditure relates.
(4) For the purposes of this section “the relevant period” means the period—
(a) beginning with the day on which the expenditure was incurred, and
(b) ending with the fifth anniversary of the last day of the accounting period in which the expenditure was incurred.
(5) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (1).
(6) If a person who has made a return becomes aware that, after making it, anything in it has become incorrect because of the operation of this section, the person must give notice to an officer of Revenue and Customs specifying how the return needs to be amended.
(7) A notice under subsection (6) must be given within 3 months beginning with the day on which the person first became aware that anything in the return had become incorrect because of the operation of this section.
(8) In this section, “abandonment programme”, “approval” and “approved” (in relation to an abandonment programme) have the same meaning as in Part 4 of the Petroleum Act 1998.
164 General decommissioning expenditure incurred before cessation of ring fence trade
(1) A person (“R”) carrying on a ring fence trade may elect to have a special allowance made to R for a chargeable period (the “relevant chargeable period”) if conditions A and B are met.
(1A) Condition A is that one or more of these paragraphs applies—
(a) R incurs general decommissioning expenditure in the relevant chargeable period in respect of decommissioning carried out in that period;
(b) R incurs general decommissioning expenditure in the relevant chargeable period in respect of decommissioning carried out in a previous chargeable period;
(c) R incurred general decommissioning expenditure in a previous chargeable period in respect of decommissioning that has not been carried out until the relevant chargeable period.
(1B) Condition B is that the plant or machinery concerned has been brought into use for the purposes of the ring fence trade.
(1C) If the plant or machinery concerned is incidentally-acquired redundant plant or machinery (see subsection (1D)), it is to be regarded for the purposes of this section as having been brought into use for the purposes of the ring fence trade.
(1D) Plant or machinery is “incidentally-acquired redundant plant or machinery” if—
(a) it has not been brought into use for the purposes of the ring fence trade,
(b) it forms part of a relevant installation (see subsection (1E)) which has been brought into use for the purposes of the ring fence trade,
(c) at the time R acquired an interest in the relevant installation, the plant or machinery was not being used for any purposes, and
(d) the acquisition of the interest in the plant or machinery was merely incidental to the acquisition of the interest in the relevant installation.
(1E) For the purposes of subsection (1D)—
“relevant installation” means—
an offshore installation,
a submarine pipeline, or
a relevant onshore installation;
“offshore installation” and “submarine pipeline” have the same meaning as in Part 4 of the Petroleum Act 1998;
“relevant onshore installation” has the meaning given by section 163(3C).
(2) The election—
(a) must be made by notice to an officer of Revenue and Customs no later than 2 years after the end of the relevant chargeable period, and
(b) is irrevocable.
(3) The election must specify—
(a) the general decommissioning expenditure to which it relates, ...
(aa) the chargeable period in which the expenditure was incurred,
(ab) the decommissioning to which the expenditure relates,
(ac) the chargeable period in which the decommissioning was carried out, and
(b) where the plant or machinery concerned has been or is to be demolished, any amounts received for its remains.
(4) If a person makes an election under this section—
(a) he is entitled to a special allowance ... for the relevant chargeable period, and
(b) neither of sections 26(3) and 161C(2)(net cost of demolition where plant or machinery not replaced, or cost of preparing for reuse, added to existing pool) applies.
(5) The amount of the special allowance for the relevant chargeable period is equal to the amount of the general decommissioning expenditure to which the election relates.
(5A) But subsection (5) is subject to subsections (5B) and (6) and sections 165A to 165E.
(5B) If an amount of general decommissioning expenditure to which the election relates is disproportionate to the relevant decommissioning carried out in the specified decommissioning period then, for the purposes of this section, the election is to be taken to specify only the allowable expenditure.
(5C) The application of subsection (5B) to an amount of general decommissioning expenditure does not prevent a person from making an election under this section for a subsequent chargeable period specifying the non-allowable expenditure.
(5D) In subsections (5B) and (5C)—
“allowable expenditure”, in relation to general decommissioning expenditure, means the amount of the expenditure that is proportionate to the relevant decommissioning carried out in the specified decommissioning period;
“non-allowable expenditure”, in relation to general decommissioning expenditure, means so much of that expenditure as is not allowable expenditure;
“relevant decommissioning”, in relation to general decommissioning expenditure, means the decommissioning to which the expenditure relates;
“specified decommissioning period”, in relation to relevant decommissioning, means the chargeable period specified in the election as the period in which the decommissioning was carried out;
“specified expenditure period”, in relation to general decommissioning expenditure, means the chargeable period specified in the election as the period in which the expenditure was incurred.
(6) If plant or machinery is demolished, the total of any special allowances in respect of expenditure on decommissioning the plant or machinery is reduced by any amount received for the remains of the plant or machinery.
Here “ decommissioning ” has the meaning given by section 163(4A).
(7) Effect is given to subsection (6) by setting the amount (until wholly utilised)—
first, against any special allowance for the chargeable period in which the amount is received (as previously reduced in giving effect to subsection (6));
second, against special allowances for earlier chargeable periods (as so reduced and taking later such periods before earlier ones); and
third, against special allowances for later chargeable periods (as so reduced and taking earlier such periods before later ones).
165 General decommissioning expenditure after ceasing ring fence trade
(1) This section applies if—
(a) a person (“the former trader”) has ceased to carry on a ring fence trade,
(b) the decommissioning condition is met in relation to a notional accounting period, and
(c) the general decommissioning expenditure is not otherwise deductible in calculating the income of the former trader for any tax purpose.
(1A) The decommissioning condition is met in relation to a notional accounting period (the “relevant period”) if one or more of these paragraphs applies—
(a) the former trader incurs general decommissioning expenditure in the relevant period in respect of decommissioning carried out in that period,
(b) the former trader incurs general decommissioning expenditure in the relevant period in respect of decommissioning carried out in—
(i) a previous notional accounting period, or
(ii) a chargeable period falling before the first notional accounting period, and
(c) the former trader incurred general decommissioning expenditure in—
(i) a previous notional accounting period, or
(ii) a chargeable period falling before the first notional accounting period,
in respect of decommissioning that has not been carried out until the relevant period.
(1B) “Notional accounting period” means each of the following periods—
(a) the period that—
(i) begins with the day following the last day on which the former trader carried on the ring fence trade, and
(ii) ends with the day on which the first termination event subsequently occurs, and
(b) each period that—
(i) begins with the day following the last day of a period determined under paragraph (a) or this paragraph, and
(ii) ends with the day on which the first termination event subsequently occurs;
but there are to be no notional accounting periods after the end of the post-cessation period.
(1C) “Termination event”, in relation to a notional accounting period, means each of the following—
(a) the end of the period of 12 months beginning with the first day of the notional accounting period,
(b) the occurrence of an accounting date of the former trader or, if there is a period for which the former trader does not make up accounts, the end of that period (but see subsections (6A) and (6B)), and
(c) the end of the post-cessation period.
(2) “The post-cessation period” means the period that—
(a) begins with the day following the last day on which the former trader carried on the ring fence trade, and
(b) ends with the day on which condition A and condition B are both met (or, if they are met on different days, the later of those days).
(2A) Condition A is met if each approved abandonment programme that relates wholly or partly to relevant plant and machinery has ceased to have effect.
(2B) Condition B is met if the Secretary of State is satisfied that no other abandonment programmes that relate wholly or partly to relevant plant and machinery will be approved.
(2C) For the purposes of condition A, an approved abandonment programme ceases to have effect if and when—
(a) the programme has been carried out to the satisfaction of the Secretary of State, or
(b) approval of the programme has been withdrawn.
(3) If this section applies in relation to a notional accounting period—
(a) an amount equal to the relevant decommissioning cost for that period, or the aggregate of all the relevant decommissioning costs for that period, is allocated to the appropriate pool for the chargeable period in which the former trader ceased to carry on the ring fence trade, and
(b) where any of the general decommissioning expenditure was incurred on the demolition of plant or machinery,any amount received within the post-cessation period for the remains of the plant or machinery does not constitute income of the former trader for any tax purpose.
(3A) Subsection (3) is subject to sections 165A to 165E.
(4) In subsection (3)—
“the appropriate pool” means the pool to which the expenditure on the demolished plant or machinery has been allocated, and
“relevant decommissioning cost”, for a notional accounting period, means the amount by which general decommissioning expenditure falling within paragraph (a), (b) or (c) of subsection (1A) in relation to that period exceeds any amounts received before or during that period for the remains of any plant or machinery on whose demolition any of the general decommissioning expenditure was incurred.
(4A) General decommissioning expenditure is to be disregarded for the purposes of this section if the expenditure is incurred in decommissioning plant and machinery at a time—
(a) after an abandonment programme relating wholly or partly to the plant and machinery has had its approval withdrawn, and
(b) when no other abandonment programme relating wholly or partly to the plant and machinery is approved.
(4B) If an amount of general decommissioning expenditure is disproportionate to the relevant decommissioning carried out in the decommissioning period then, for the purposes of this section, only the allowable expenditure is to be taken to have been incurred in the expenditure period.
(4C) The application of subsection (4B) to an amount of general decommissioning expenditure does not prevent the non-allowable expenditure from being taken into account under this section in relation to a subsequent notional accounting period.
(4D) In subsections (4B) and (4C)—
“allowable expenditure”, in relation to general decommissioning expenditure, means the amount of the expenditure that is proportionate to the relevant decommissioning carried out in the decommissioning period;
“decommissioning period”, in relation to relevant decommissioning, means the notional accounting period or chargeable period in which the decommissioning was carried out;
“expenditure period”, in relation to general decommissioning expenditure, means the notional accounting period or chargeable period in which the expenditure was incurred;
“non-allowable expenditure”, in relation to general decommissioning expenditure, means so much of that expenditure as is not allowable expenditure;
“relevant decommissioning”, in relation to general decommissioning expenditure, means the decommissioning to which the expenditure relates.
(5) All such adjustments, by discharge or repayment of tax or otherwise, are to be made as are necessary to give effect to this section.
(6) For the purposes of this section, it does not matter if approval of an abandonment programme that relates to relevant plant and machinery (including approval of the first such programme) is given before or after the start of the post-cessation period.
(6A) If the former trader—
(a) carries on more than one trade,
(b) makes up accounts of any of them to different dates, and
(c) does not make up general accounts for the whole of the company's activities,
subsection (1C)(b) applies with reference to the accounting date of such one of the trades as the former trader may determine.
(6B) If the Commissioners for Her Majesty's Revenue and Customs are of the opinion, on reasonable grounds, that a date determined by the former trader for the purposes of subsection (6A) is inappropriate, the Commissioners may by notice direct that the accounting date of such other of the trades referred to in that subsection as appears to the Commissioners to be appropriate is to be used instead.
(7) In this section—
“abandonment programme” means an abandonment programme under Part 4 of the Petroleum Act 1998;
“approved”, in relation to an abandonment programme, means approved or revised under Part 4 of the Petroleum Act 1998 (and “approval” is to be construed accordingly);
“relevant plant and machinery” means plant and machinery—
which has been brought into use for the purposes of the ring fence trade that has ceased, and
which, when last in use for the purposes of that ring fence trade, was, or formed part of, an offshore installation or submarine pipeline;
and for this purpose “offshore installation” and “submarine pipeline” have the same meaning as in Part 4 of the Petroleum Act 1998;
“withdrawn”, in relation to approval of an abandonment programme, means withdrawn under Part 4 of the Petroleum Act 1998.
165A Decommissioning services supplied by connected person
(1) Allowances under this Part are restricted under section 165B(1) if—
(a) a person (“R”) who is carrying on, or has ceased to carry on, a ring fence trade enters into an arrangement,
(b) under the arrangement, a person (“S”) who is connected with R provides a service to R, and
(c) all or part of the consideration for the service is decommissioning expenditure.
(2) Subsection (1)(b) may be satisfied whether the service is provided to R directly or indirectly; and in particular it does not matter—
(a) whether R and S are parties to the same contract, or
(b) whether payments are made by R directly to S.
(3) Subsections (4) to (9) apply for the purposes of this section and sections 165B to 165E.
(4) References to providing a service include—
(a) letting a ship on charter or any other asset on hire, and
(b) providing goods which are to be used up in the course of providing a service.
(5) “Decommissioning expenditure” means expenditure in connection with decommissioning.
(6) “Decommissioning” means—
(a) demolishing plant or machinery,
(b) preserving plant or machinery pending its reuse or demolition,
(c) preparing plant or machinery for reuse, or
(d) arranging for the reuse of plant or machinery.
(7) It is immaterial for the purposes of subsection (6)(b) whether the plant or machinery is reused, is demolished or is partly reused and partly demolished.
(8) It is immaterial for the purposes of subsection (6)(c) and (d) whether the plant or machinery is in fact reused.
(9) References to R's expenditure under the arrangement are to so much of the consideration for the service as is decommissioning expenditure incurred by R.
(1) The amount, if any, by which R's expenditure under the arrangement exceeds D is to be left out of account in determining R's available qualifying expenditure.
(2) D is the cost to S of providing the service or, if R's expenditure under the arrangement relates to only part of the service, that part.
(3) Subsection (2) is subject to sections 165C and 165D, which provide for D to be calculated differently in certain circumstances.
(4) But if, under any arrangement, a particular service or part of a service is provided by more than one person who is connected with R (so that without this subsection there would be more than one amount for D in relation to that service or part), D is the lowest of those amounts.
165C Allowance in respect of certain services related to decommissioning
(1) This section applies to so much of R's expenditure under the arrangement as relates to the supply by S of a service if—
(a) the service is a planning or project management service, and
(b) the cost plus method is an appropriate method of applying the arm's length principle to the provision of it.
(2) D is the sum of—
(a) the cost to S of providing the service or, if R's expenditure under the arrangement relates to only part of the service, that part, and
(b) the appropriate percentage of that amount.
(3) The appropriate percentage is the smaller of—
(a) the appropriate mark up determined in accordance with the cost plus method, and
(b) 10%.
(4) Any expression which is used in this section and in the transfer pricing guidelines has the meaning given in those guidelines.
“The transfer pricing guidelines” has the meaning given by section 164(4) of TIOPA 2010.