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In force since 2026-07-15, as the publisher states.
Copy read on 2026-11-08. The page it was read from
Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.
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In this Chapter “ring fence trade” means activities which— (a) are within the definition of “oil-related activities” in section 16(2) (oil extraction and related activities), and (b) constitute a separate trade (whether because of section 16(1) or otherwise).
Propose a changeIn this Chapter— “chargeable period” has the same meaning as in Part 1 of OTA 1975 (see section 1(3) of that Act), “designated area” means an area designated by Order in Council under section 1(7) of the Continental Shelf Act 1964, “oil” means any substance won or capable of being won under the authority of a licence granted under Part 1 of the Petroleum Act 1998 or the Petroleum (Production) Act (Northern Ireland) 1964 (c. 28 (N.I.)), other than methane gas won in the course of operations for making and keeping mines safe, “oil field” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act), “OTA 1975” means the Oil Taxation Act 1975, and “participator” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act).
Propose a change(1) This section applies if a person disposes of oil in circumstances such that the market value of the oil— (a) falls to be taken into account under section 2 of OTA 1975, otherwise than by virtue of paragraph 6 of Schedule 3 to that Act, in calculating for petroleum revenue tax purposes the assessable profit or allowable loss accruing to that person in a chargeable period from an oil field, or (b) would so fall but for section 10 of that Act. (2) For income tax purposes, the disposal of the oil, and its acquisition by the person to whom it was disposed of, are to be treated as having been for a consideration equal to the market value of the oil— (a) as so taken into account under section 2 of that Act, or (b) as would have been so taken into account under that section but for section 10 of that Act.
Propose a change(1) This section applies if conditions A, B and C are met. (2) Condition A is that a person disposes of oil acquired by the person— (a) in the course of oil extraction activities carried on by the person, or (b) as a result of oil rights held by the person. (3) Condition B is that the disposal is not a sale at arm's length (as defined in paragraph 1 of Schedule 3 to OTA 1975). (4) Condition C is that section 225F does not apply in relation to the disposal. (5) For income tax purposes, the disposal of the oil, and its acquisition by the person to whom it was disposed of, are to be treated as having been for a consideration equal to the market value of the oil. (6) Paragraphs 2 and 3A of Schedule 3 to OTA 1975 (definition of market value of oil including light gases) apply for the purposes of this section as they apply for the purposes of Part 1 of that Act, but with the following modifications. (7) Those modifications are that— (a) any reference in paragraph 2 to the notional delivery day for the actual oil is to be read as a reference to the day on which the oil is disposed of as mentioned in this section, and (b) paragraph 2(4) is to be treated as omitted.
Propose a change(1) This section applies if an excess of nominated proceeds for a chargeable period— (a) is taken into account in calculating a person's profits under section 2(5)(e) of OTA 1975, or (b) would have been so taken into account if the person were chargeable to tax under OTA 1975 in respect of an oil field. (2) For income tax purposes, the amount of the excess is to be added to the consideration which the person is treated as having received in respect of oil disposed of by that person in the period.
Propose a change(1) This section applies if conditions A and B are met. (2) Condition A is that a person makes a relevant appropriation of oil without disposing of it. (3) Condition B is that the person does so in circumstances such that the market value of the oil— (a) falls to be taken into account under section 2 of OTA 1975 in calculating for petroleum revenue tax purposes the assessable profit or allowable loss accruing to that person in a chargeable period from an oil field, or (b) would so fall but for section 10 of that Act. (4) For income tax purposes, the person is to be treated as having, at the time of the appropriation— (a) sold the oil in the course of the separate trade consisting of activities falling within the definition of “oil-related activities” in section 16(2) (oil extraction and related activities), and (b) purchased it in the course of the separate trade consisting of activities not so falling. (5) For income tax purposes, that sale and purchase is to be treated as having been at a price equal to the market value of the oil— (a) as so taken into account under section 2 of OTA 1975, or (b) as would have been so taken into account under that section but for section 10 of that Act. (6) In this section “relevant appropriation” has the meaning given by section 12(1) of OTA 1975.
Propose a change(1) This section applies if conditions A, B and C are met. (2) Condition A is that a person appropriates oil acquired by the person— (a) in the course of oil extraction activities carried on by the person, or (b) as a result of oil rights held by the person. (3) Condition B is that the oil is appropriated to refining or to any use except the production purposes of an oil field (as defined in section 12(1) of OTA 1975). (4) Condition C is that section 225I does not apply in relation to the appropriation. (5) For income tax purposes— (a) the person is to be treated as having, at the time of the appropriation, sold and purchased the oil as mentioned in section 225I(4)(a) and (b), and (b) that sale and purchase is to be treated as having been at a price equal to the market value of the oil. (6) Paragraphs 2 and 3A of Schedule 3 to OTA 1975 (definition of market value of oil including light gases) apply for the purposes of this section as they apply for the purposes of Part 1 of that Act, but with the following modifications. (7) Those modifications are that— (a) any reference in paragraph 2 to the notional delivery day for the actual oil is to be read as a reference to the day on which the oil is appropriated as mentioned in this section, (b) any reference in paragraphs 2 and 2A to oil being relevantly appropriated is to be read as a reference to its being appropriated as mentioned in this section, and (c) paragraph 2(4) is to be treated as omitted.
Propose a change(1) This section applies if conditions A and B are met. (2) Condition A is that a person has incurred expenditure (by way of purchase, rent or otherwise) on the acquisition of an asset in a transaction to which paragraph 2 of Schedule 4 to OTA 1975 applies (transactions between connected persons or otherwise than at arm's length). (3) Condition B is that the expenditure incurred by the other person mentioned in that paragraph in acquiring, bringing into existence or enhancing the value of the asset as mentioned in that paragraph— (a) has been or is to be met by a regional development grant, and (b) falls (in whole or in part) to be taken into account under Part 2 or 6 of CAA 2001 (capital allowances relating to plant and machinery or research and development). (4) Subsection (5) applies for the purposes of the charge to income tax on the income arising from the activities of the person mentioned in subsection (2) which are treated by section 16(1) (oil extraction and related activities) as a separate trade for those purposes. (5) The expenditure mentioned in subsection (2) is to be reduced by the amount of the regional development grant mentioned in subsection (3). (6) In this section “regional development grant” means a grant falling within section 534(1) of CAA 2001 (Northern Ireland regional development grant).
Propose a change(1) This section applies if conditions A, B and C are met. (2) Condition A is that expenditure incurred by a person in relation to an asset in a tax year (“the initial period”) has been or is to be met by a regional development grant. (3) Condition B is that, despite the provisions of section 534(2) and (3) of CAA 2001 (Northern Ireland regional development grants) and section 225K of this Act, in determining that person's liability to income tax for the initial period, the whole or some part of that expenditure falls to be taken into account under Part 2 or 6 of CAA 2001. (4) Condition C is that— (a) expenditure on the asset becomes allowable under section 3 or 4 of OTA 1975 in a tax year (an “adjustment period”) subsequent to the initial period, or (b) the proportion of any such expenditure which is allowable in an adjustment period is different as compared with the initial period. (5) There is to be redetermined for the purposes of subsections (7) and (8) the amount of the expenditure mentioned in subsection (2) which would have been taken into account as mentioned in subsection (3) if the circumstances mentioned in subsection (4) had existed in the initial period. (6) According to whether the amount as so redetermined is greater or less than the amount actually taken into account as mentioned in subsection (3), the difference is referred to in subsections (7) and (8) as the increase or the reduction in the allowance. (7) If there is an increase in the allowance, an amount of capital expenditure equal to the increase is to be treated, for the purposes of Part 2 or 6 of CAA 2001, as having been incurred by the person concerned in the adjustment period on an extension of, or addition to, the asset mentioned in subsection (2). (8) If there is a reduction in the allowance, the person concerned is to be treated, for the purpose of determining that person's liability to income tax, as having received in the adjustment period, as income of the trade in connection with which the expenditure mentioned in subsection (2) was incurred, a sum equal to the amount of the reduction in the allowance. (9) In this section “regional development grant” has the meaning given by section 225K(6).
Propose a change(1) Subsection (5) applies to a sum which meets conditions A, B and C. (2) Condition A is that the sum constitutes a tariff receipt or tax-exempt tariffing receipt of a person who is a participator in an oil field. (3) Condition B is that the sum constitutes consideration in the nature of income rather than capital. (4) Condition C is that the sum would not, but for subsection (5), be treated as mentioned in that subsection. (5) The sum is to be treated as a receipt of the separate trade mentioned in section 16(1) (oil extraction and related activities). (6) So far as they would not otherwise be so treated, the activities— (a) of a participator in an oil field, or (b) of a person connected with the participator, in making available an asset in a way which gives rise to tariff receipts or tax-exempt tariffing receipts of the participator are to be treated for the purposes of this Chapter as oil extraction activities. (7) In determining for the purposes of subsection (2) whether a sum constitutes a tariff receipt or tax-exempt tariffing receipt of a person who is a participator, no account may be taken of any sum which— (a) is in fact received or receivable by a person connected with the participator, and (b) constitutes a tariff receipt or tax-exempt tariffing receipt of the participator. But in relation to the person by whom such a sum is actually received, subsection (2) has effect as if the person were a participator and as if condition A were met. (8) References in this section to a person connected with a participator include a person with whom the person is associated, within the meaning of paragraph 11 of Schedule 2 to the Oil Taxation Act 1983, but section 878(5) of this Act (application of definition of “connected” persons) does not apply for the purposes of this section. (9) In this section— “tax-exempt tariffing receipt” has the meaning given by section 6A(2) of the Oil Taxation Act 1983, and “tariff receipt” has the same meaning as in that Act.
Propose a change(1) Subsection (2) applies if, as a result of section 3(1)(hh) of OTA 1975 (obtaining abandonment guarantee), expenditure incurred by a participator in an oil field is allowable (in whole or in part) for petroleum revenue tax purposes under section 3 of that Act. (1A) Subsection (2) also applies if expenditure incurred by a participator in an oil field would be so allowable as a result of section 3(1)(hh) of that Act but for the fact that the oil field is a non-taxable oil field within the meaning of Part 3 of FA 1993 (see section 185 of that Act). (2) So far as the expenditure mentioned in subsection (1) or (1A) is or would be so allowable, it is to be allowed as a deduction in calculating the participator's ring fence income. (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) In this Chapter— “abandonment guarantee” has the same meaning as it has for the purposes of section 3 of OTA 1975 (see section 104 of FA 1991), and “the guarantor” and “the relevant participator” have the same meaning as in section 104 of that Act.
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Propose a change(1) Section 225S applies if— (a) paragraph 2A of Schedule 5 to OTA 1975 applies ..., and (b) the default payment falls (in whole or part) to be attributed to the contributing participator under paragraph 2A(2) of that Schedule , or would fall to be so attributed if a claim under paragraph 2A(2) of that Schedule were made . (1A) The condition in subsection (1)(b) is to be treated as met for the purposes of this section if it would be met but for the fact that the contributing participator is (or was) a participator in an oil field that is a non-taxable oil field within the meaning of Part 3 of FA 1993 (see section 185 of that Act). (2) In section 225S “the additional abandonment expenditure” means the amount which is or would be attributed to the contributing participator as mentioned in subsection (1)(b) (whether representing the whole or only part of the default payment). (3) In this Chapter “default payment”, “the defaulter” and “contributing participator” have the same meaning as in paragraph 2A of Schedule 5 to OTA 1975.
Propose a change(1) Relief by way of capital allowance, or a deduction in calculating ring fence income, is to be available to the contributing participator in respect of the additional abandonment expenditure if any such relief or deduction would have been available to the defaulter if— (a) the defaulter had incurred the additional abandonment expenditure, and (b) at the time that that expenditure was incurred the defaulter continued to carry on a ring fence trade. (2) The basis of qualification for or entitlement to any relief or deduction which is available to the contributing participator under this section is to be determined on the assumption that the conditions in subsection (1)(a) and (b) are met. (3) But, subject to subsection (2), any such relief or deduction is to be available in the same way as if the additional abandonment expenditure had been incurred by the contributing participator for the purposes of the ring fence trade carried on by the contributing participator.
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Propose a change(1) Subsection (2) applies if interest is paid to a participator under paragraph 10(4) of Schedule 19 to FA 1982 (interest on advance petroleum revenue tax which becomes repayable). (2) The interest paid is to be disregarded in calculating the participator's income for income tax purposes.
Propose a change(1) This section applies if— (a) a person that is or has been carrying on a ring fence trade (“the defaulter”) has defaulted on a liability under— (i) a relevant agreement, or (ii) an abandonment programme, to make a payment towards decommissioning expenditure, (b) another person that is or has been carrying on a ring fence trade (“the contributing person”) pays an amount (“the relevant contribution”) in or towards meeting the whole or part of the default, and (c) the amount of the relevant contribution is less than the sum of the amounts within subsection (2). (2) The amounts within this subsection are— (a) any payments made (directly or indirectly) to the contributing person by the guarantor under an abandonment guarantee as a result of the defaulter defaulting on the liability, (b) any reimbursement payments, and (c) any relief from tax which the contributing person obtains in respect of the relevant contribution. (3) The difference between— (a) the sum of the amounts within subsection (2), and (b) the relevant contribution, (“the relevant difference”) is to be treated as a receipt (in the nature of income) of the contributing person's ring fence trade for the relevant tax year (see subsection (4)). (4) “The relevant tax year” means the tax year that includes the day on which the Secretary of State certifies that the relevant abandonment programme has been satisfactorily completed (“the certification date”). This is subject to subsection (5). (5) If the contributing person's ring fence trade is permanently discontinued before the certification date, “the relevant tax year” is the last tax year in which that trade is carried on. (6) The relevant difference is to be determined— (a) in a case where subsection (5) applies, at the end of the tax year in which the certification date falls, and (b) in any other case, at the end of the relevant tax year. (7) In a case where subsection (5) applies, any income tax chargeable for the relevant tax year by virtue of this section is due and payable for the tax year in which the certification date falls. (8) Any additional assessment to income tax required in order to take account of a receipt arising under this section may be made at any time not later than 4 years after the end of the tax year in which the certification date falls. (9) In this section— “abandonment programme” means an abandonment programme approved under Part 4 of the Petroleum Act 1998 (including such a programme as revised), “decommissioning expenditure” has the meaning given by section 330C of CTA 2010, “reimbursement payment” means any payment made to the contributing person by the defaulter in reimbursing the contributing person in respect of, or otherwise making good to the contributing person, the whole or any part of the relevant contribution, “the relevant abandonment programme” means the abandonment programme in respect of which the decommissioning expenditure mentioned in subsection (1)(a) was incurred, and “relevant agreement” has the meaning given by section 104(5)(a) of FA 1991.
Propose a changeThe provisions of this Chapter apply to professions and vocations as they apply to trades.
Propose a change(1) This Chapter applies if— (a) a person carrying on a trade changes, from one period of account to the next, the basis on which profits of the trade are calculated for income tax purposes, (b) the old basis accorded with the law or practice applicable in relation to the period of account before the change, and (c) the new basis accords with the law and practice applicable in relation to the period of account after the change, but does not apply to income which is charged in accordance with section 832 (relevant foreign income charged on the remittance basis). (2) The practice applicable in any case means the accepted practice in cases of that description as to how profits of a trade should be calculated for income tax purposes. (3) A person changes the basis on which profits of a trade are calculated for income tax purposes if the person makes— (a) a change of accounting policy (see subsection (4)), or (b) a change in the tax adjustments applied (see subsections (5) and (6)). (4) A “change of accounting policy” includes, in particular— (a) a change from using UK generally accepted accounting practice to using generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards, and (b) a change from using generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards to using UK generally accepted accounting practice. (5) A “tax adjustment” means any adjustment required or authorised by law in calculating profits of a trade for income tax purposes. (6) A “change in the tax adjustments applied”— (a) does not include a change made in order to comply with amending legislation not applicable to the previous period of account, but (b) includes a change resulting from a change of view as to what is required or authorised by law or as to whether any adjustment is so required or authorised.
Propose a change(1) This Chapter applies if— (a) the cash basis does apply in relation to a trade for a tax year but does not apply in relation to the trade for the following tax year. (b) the cash basis does not apply in relation to a trade for a tax year but does apply in relation to the trade for the following tax year. (2) But this Chapter does not apply to income which is charged in accordance with section 832. (3) This section is subject to section 227C (application of Chapter where section 227B applies).
Propose a change(1) Subsection (2) applies if— (a) an individual carries on a trade in a tax year, and (b) the profits or losses of the trade for the tax year are treated as nil under section 783AF (trade profits: full relief under Chapter 1 of Part 6A) by virtue of the fact that the conditions in section 783AE(2) are met. (2) For the purposes of determining if this Chapter applies, the cash basis is to be treated as not applying in relation to the trade for the tax year.
Propose a change(1) This section applies if, as a result of the operation of section 227B, the basis on which profits of a trade are calculated is treated as changed as mentioned in section 227A(1). (2) This Chapter applies as if— (a) in sections 232(1) and 233(1), for “the first period of account for which the new basis is adopted” there were substituted “ the first tax year for which the profits or losses of the trade are not treated as nil under section 783AF ”, and (b) sections 235, 236, 237, 239A and 239B were omitted. (3) If there is no tax year after the change of basis for which the profits or losses of the trade are not treated as nil under section 783AF, this Chapter does not apply.
Propose a change(1) An amount by way of adjustment must be calculated in accordance with section 231. (2) If the amount produced by the calculation is positive, it is treated as income and charged to income tax under this Chapter. It is referred to in this Chapter as “adjustment income”. (3) If the amount produced by the calculation is negative, a deduction is allowed for it in calculating the profits of the trade. It is referred to in this Chapter as an “adjustment expense”. (4) This section is subject to section 234 (no adjustment for certain expenses previously brought into account).
Propose a change(1) Tax is charged under this Chapter on the full amount of any adjustment income arising in the tax year. (2) This is subject to— (a) sections 237 to 239B (which provide for spreading of adjustment income), and (b) Part 8 (foreign income: special rules).
Propose a changeThe person liable for any tax charged under this Chapter is the person receiving or entitled to the adjustment income.
Propose a changeThe amount of the adjustment is calculated as follows. Step 1 Add together any amounts representing the extent to which, comparing the two bases, profits were understated (or losses overstated) on the old basis. The amounts are— Amounts 1 | Receipts which on the new basis would have been brought into account in calculating the profits of a period of account before the change, so far as they were not so brought into account. 2 | Expenses which on the new basis fall to be brought into account in calculating the profits of a period of account after the change, so far as they were brought into account in calculating the profits of a period of account before the change. 3 | Deductions in respect of opening trading stock or opening work in progress in the first period of account on the new basis, so far as they— are not matched by credits in respect of closing trading stock or closing work in progress in the last period of account before the change, or are calculated on a different basis that if used to calculate those credits would have given a higher figure. 4 | Amounts recognised for accounting purposes in respect of depreciation in the last period of account before the change, so far as they were not the subject of an adjustment for income tax purposes, where such an adjustment would be required on the new basis. Step 2 Then deduct any amounts representing the extent to which, comparing the two bases, profits were overstated (or losses understated) on the old basis. The amounts are— Amounts 1 | Receipts which were brought into account in a period of account before the change, so far as they would not have been so brought into account if the profits had been calculated on the new basis. 2 | Expenses which were not brought into account in calculating the profits of a period of account before the change, so far as they— would have been brought into account for a period of account before the change if the profits had been calculated on the new basis, and would have been brought into account for a period of account after the change if the profits had continued to be calculated on the old basis. 3 | Credits in respect of closing trading stock or closing work in progress in the last period of account before the change, so far as they— are not matched by deductions in respect of opening trading stock or opening work in progress in the first period of account on the new basis, or are calculated on a different basis that if used to calculate those deductions would have given a lower figure. An amount so deducted may not be deducted again in calculating the profits of a period of account.
Propose a change(1) Adjustment income is treated as arising on the last day of the first period of account for which the new basis is adopted. (2) But this is subject to sections 235 (cases where adjustment not required until assets realised or written off) and 236 (change from realisation basis to mark to market). (3) Adjustment income is treated for the purposes of Part 4 of ITA 2007(loss relief) as profits of the trade for the tax year in which tax is charged on it. (4) In the case of an individual whose income from the trade is relevant UK earnings within section 189(2)(b) of FA 2004, adjustment income is similarly relevant UK earnings.
Propose a change(1) An adjustment expense is treated as an expense of the trade arising on the last day of the first period of account for which the new basis is adopted. (2) But this is subject to sections 235 (cases where adjustment not required until assets realised or written off) and 236 (change from realisation basis to mark to market).
Propose a change(1) This section applies if, as a result of a change of basis, expenses brought into account before the change on the old basis would on the new basis be brought into account over more than one period of account after the change. (2) In such a case— (a) no adjustment is made under this Chapter, and (b) in calculating the profits of the trade no deduction is allowed for the expenses for any period of account after the change.
Propose a change(1) This section applies if there is a change of basis resulting from a tax adjustment affecting the calculation of any of the following amounts. (2) The amounts are— (a) any amount brought into account in respect of closing trading stock or closing work in progress in the last period of account before the change of basis, (b) any amount brought into account in respect of opening trading stock or opening work in progress in the first period of account on the new basis, and (c) any amount brought into account in respect of depreciation. (3) Adjustment income or (as the case may be) an adjustment expense is treated as arising only when the asset to which it relates is realised or written off.
Propose a change(1) This section applies if there is a change of basis from— (a) not recognising a profit or loss on an asset until the asset is realised, to (b) bringing assets into account in each period of account at a fair value. (2) So far as— (a) a receipt within item 1 of step 1 in section 231 represents the fair value of an asset that is trading stock, or (b) an expense within item 2 of that step relates to such an asset, adjustment income or (as the case may be) an adjustment expense is treated as not arising until the period of account in which the value of the asset is realised. (3) In the case of adjustment income, this is subject to any election under section 237 (election for spreading). (4) In this section “trading stock” has the same meaning as in section 174.
Propose a change(1) If section 236 applies, the person who is liable to tax on any adjustment income may elect for the adjustment income to be spread over 6 periods of account. (2) The election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the change of basis occurs. (3) If an election is made, an amount equal to one-sixth of the amount of the adjustment income— (a) is treated as arising, and (b) is charged to tax, in each of the 6 periods of account beginning with the first period to which the new basis applies. (4) But if, before the whole of the adjustment income has been charged to tax, the person permanently ceases to carry on the trade, the whole of the amount so far as not previously brought into charge to tax— (a) is treated as arising, and (b) is charged to tax, immediately before the cessation.
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Propose a change(1) This section applies if— (a) the cash basis applies in relation to a trade for a tax year, and (b) the cash basis does not apply in relation to the trade for the following tax year. (2) Any adjustment income is spread over 6 tax years as follows. (3) In each of the 6 tax years beginning with that in which the whole amount of the adjustment income would otherwise be chargeable to tax, an amount equal to one-sixth of the amount of the adjustment income is treated as arising and is charged to tax. (4) This section is subject to any election under section 239B (election to accelerate charge).
Propose a change(1) A person who under section 239A is liable to tax for a tax year on an amount of adjustment income may elect for an additional amount to be treated as arising in the tax year. (2) The election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year. (3) The election must specify the amount to be treated as income arising in the tax year (which may be any amount of the adjustment income not previously charged to tax). (4) If an election is made, section 239A applies in relation to any subsequent tax year as if the amount of adjustment income (as reduced by any previous application of this section) were reduced by the amount given by the following formula— A × 6 T where— A is the additional amount treated as arising in the tax year for which the election is made, and T is the number of tax years remaining after that tax year in the period of 6 tax years referred to in section 239A.
Propose a change(1) This section applies in the case of the death of a person who would otherwise have been liable to tax under this Chapter on adjustment income. (2) The tax under this Chapter for which the person would otherwise have been liable— (a) is to be assessed and charged on the personal representatives, and (b) is to be a debt due from and payable out of the deceased's estate. (3) The personal representatives may make any election under this Chapter that the deceased might have made.
Propose a changeThe provisions of this Chapter apply to professions and vocations as they apply to trades.
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