Finance Act 2014

(356B) This Chapter sets out how relief for certain capital expenditure incurred for the purposes of onshore oil-related activities is given by way of reduction of a company's adjusted ring fence profits, and includes provision about— (a) the need for allowance held for a site to be activated by relevant income from the same site in order for the allowance to be available for reducing adjusted ring fence profits, (b) elections by a company to transfer allowance between different sites in which it is a licensee (see section 356F), and (c) mandatory transfers of allowance where shares in the equity in a licensed area are disposed of (see sections 356H to 356HB and the related provisions in sections 356G to 356GD). (356BA) (1) In this Chapter “onshore oil-related activities” means activities of a company which are carried on onshore and— (a) fall within any of subsections (1) to (4) of section 356BB, or (b) consist of the acquisition, enjoyment or exploitation of oil rights. (2) Activities of a company are carried on “onshore” if they are authorised— (a) under a landward licence under Part 1 of the Petroleum Act 1998 or the Petroleum (Production) Act 1934, or (b) under a licence under the Petroleum (Production) Act (Northern Ireland) 1964. (3) In subsection (2)(a) “landward licence” means a licence in respect of an area which falls within the definition of “landward area” in the regulations pursuant to which the licence was applied for. (356BB) (1) Activities of a company in searching for oil or causing such searching to be carried out for the company. (2) Activities of a company in extracting oil, or causing oil to be extracted for it, under rights which— (a) authorise the extraction, and (b) are held by it or by a company associated with it. (3) Activities of a company in transporting, or causing to be transported for it, oil extracted under rights which— (a) authorise the extraction, and (b) are held as mentioned in subsection (2)(b), but only if the transportation meets the condition in subsection (5). (4) Activities of the company in effecting, or causing to be effected for it, the initial treatment or initial storage of oil won from any site under rights which— (a) authorise its extraction, and (b) are held as mentioned in subsection (2)(b). (5) The condition mentioned in subsection (3) is that the transportation is to a place at which the seller in a sale at arm's length could reasonably be expected to deliver it (or, if there is more than one such place, the one nearest to the place of extraction). (6) In this section “initial storage”— (a) means, in relation to oil won from a site, the storage of a quantity of oil won from the site not exceeding 10 times the relevant share of the maximum daily production rate of oil for the site as planned or achieved (whichever is greater), but (b) does not include the matters excluded by paragraphs (a) to (c) of the definition of “initial storage” in section 12(1) of OTA 1975; and in this subsection “the relevant share” means a share proportionate to the company's share of oil won from the site concerned. (7) In this section “initial treatment” has the meaning given by section 12(1) of OTA 1975; but for this purpose that definition is to be read as if the references in it to an oil field were to a site. (356BC) In this Chapter “site” (except in the expression “drilling and extraction site”) means— (a) a drilling and extraction site that is not used in connection with any oil field, or (b) an oil field (whether or not one or more drilling and extraction sites are used in connection with it). (356C) (1) Subsection (2) applies where a company incurs any relievable capital expenditure in relation to a qualifying site. (2) The company is to hold an amount of allowance equal to 75% of the amount of the expenditure. (3) “Qualifying site” means a site whose development (in whole or in part) is authorised for the first time on or after 5 December 2013. (4) Capital expenditure incurred by a company is “relievable” only if, and so far as— (a) it is incurred for the purposes of onshore oil-related activities (see section 356BA), and (b) neither of the disqualifying conditions is met at the beginning of the day on which the expenditure is incurred (see section 356CA). (5) Allowance held under this Chapter is called “onshore allowance”. (6) Onshore allowance is said in this Chapter to be “generated” at the time when the capital expenditure is incurred (see section 356JA). (7) Onshore allowance is referred to in this Chapter as being generated— (a) “by” the company concerned, (b) “at” the site concerned. (8) Where capital expenditure is incurred only partly for the purposes of onshore oil-related activities, or the onshore oil-related activities for the purposes of which capital expenditure is incurred are carried on only partly in relation to a particular site, the expenditure is to be attributed to the site concerned on a just and reasonable basis. (9) In this section, references to authorisation of development of a site— (a) in the case of a site which is an oil field, are to be read in accordance with section 351; (b) in the case of a drilling and extraction site, are to be read in accordance with section 356J. (356CA) (1) The first disqualifying condition is that production from the site is expected to exceed 7,000,000 tonnes. (2) The second disqualifying condition is that production from the site has exceeded 7,000,000 tonnes. (3) For the purposes of this section 1,100 cubic metres of gas at a temperature of 15 degrees celsius and pressure of one atmosphere is to be counted as equivalent to one tonne. (356CB) (1) A company may make an election under this section in relation to capital expenditure incurred by it for the purposes of onshore oil-related activities if the appropriate condition is met. (2) The appropriate condition is that at the time of the election no site can be identified as a site in relation to which the expenditure has been incurred. (3) An election may not be made before the beginning of the third accounting period of the company after that in which the expenditure is incurred. (4) An election must specify— (a) the expenditure in question, (b) a site (“the specified site”) every part of which is, or is part of, an area in which the company is a licensee, and (c) an accounting period of the company (“the specified accounting period”). (5) The specified accounting period must not be earlier than the accounting period in which the election is made. (6) Where a company makes an election under this section in relation to an amount of expenditure, that amount is treated for the purposes of this Chapter as incurred by the company— (a) in relation to the specified site, and (b) at the beginning of the specified accounting period. (356D) (1) A company's adjusted ring fence profits for an accounting period are to be reduced by the cumulative total amount of activated allowance for the accounting period (but are not to be reduced below zero). (2) In relation to a company and an accounting period, the “cumulative total amount of activated allowance” is— $$A + C$where—A is the total of any amounts of activated allowance the company has, for any sites, for the accounting period (see section 356E(2)) or for reference periods within the accounting period (see section 356GB(1)), andC is any amount carried forward to the period under section 356DA.$ (356DA) (1) This section applies where, in the case of a company and an accounting period— (a) the cumulative total amount of activated allowance (see section 356D(2)), is greater than (b) the adjusted ring fence profits. (2) The difference is carried forward to the next accounting period. (356DB) (1) This section applies where a company's adjusted ring fence profits for an accounting period are reducible both— (a) under section 333(1) (by the amount of the company's pool of field allowances for the period), and (b) under section 356D(1) (by the cumulative total amount of activated allowance for the period). (2) The company may choose the order in which the different allowances are to be used. (3) If the company chooses to apply section 333(1) first, then— (a) Chapter 7 and this Chapter are to be ignored in calculating the “adjusted ring fence profits” in accordance with section 356AA, and (b) if section 356D(1) is also applied: this Chapter, but not Chapter 7, is to be ignored in calculating the adjusted ring fence profits in accordance with section 356JB. (4) If the company chooses to apply section 356D(1) first, then— (a) this Chapter and Chapter 7 are to be ignored in calculating the adjusted ring fence profits in accordance with section 356JB, and (b) if section 333(1) is also applied: Chapter 7, but not this Chapter, is to be ignored in calculating the “adjusted ring fence profits” in accordance with section 356AA. (356E) (1) This section applies where— (a) a company is a licensee in a licensed area for the whole or part (“the licensed part”) of an accounting period, (b) the company's share of the equity in the site is the same throughout the accounting period or, as the case requires, throughout the licensed part of the accounting period, (c) the licensed area is or contains a site, (d) the company holds, for the accounting period and the site, a closing balance of unactivated allowance (see section 356EA) that is greater than zero, and (e) the company has relevant income from the site for the accounting period. (2) The amount of activated allowance the company has for that accounting period and that site is the smaller of— (a) the closing balance of unactivated allowance held for the accounting period and the site; (b) the company's relevant income for that accounting period from that site. (3) In this Chapter “relevant income”, in relation to a site and an accounting period of a company, means production income of the company from any oil extraction activities carried on at the site that is taken into account in calculating the company's adjusted ring fence profits for the accounting period. (356EA) The closing balance of unactivated allowance held by a company for an accounting period and a site is— $$P + Q − R$where—P is the amount of onshore allowance generated by the company in the accounting period at the site (including any amount treated under section 356F(7) or 356HB(1) as generated by the company in that accounting period at that site);Q is any amount carried forward from an immediately preceding accounting period under section 356EB(2) or from an immediately preceding reference period under section 356GC;R is any amount deducted in accordance with section 356GD(1) (reduction of allowance if equity disposed of).$ (356EB) (1) This section applies where X is greater than Y in the case of an accounting period of a company and a site, where— - X is the closing balance of unactivated allowance for the accounting period and the site; - Y is the company's relevant income for the accounting period from that site. (2) An amount equal to the difference between X and Y is treated as onshore allowance held by the company for that site for the next accounting period (and is treated as held with effect from the beginning of that period). (356F) (1) This section applies if a company has, with respect to a site, an amount (“N”) of onshore allowance available to carry forward to an accounting period— (a) under section 356EB(2), or (b) by virtue of section 356GC(3). (2) The company may elect to transfer the whole or part of that amount to another site (“site B”), if the appropriate conditions are met. (3) The appropriate conditions are that— (a) every part of site B is, or is part of, an area in which the company is a licensee, and (b) the election is made no earlier than the beginning of the third accounting period of the company after that in which the allowance was generated. (4) For the purposes of subsection (3)(b), a company may regard an amount of onshore allowance held by it for a site as generated in a particular accounting period if the amount does not exceed— $$A − T$where—A is the amount of onshore allowance generated in that accounting period for that site;T is the total amount of onshore allowance generated in that period for that site that has already been transferred under this section.$ (5) An election must specify— (a) the amount of onshore allowance to be transferred; (b) the site at which it was generated; (c) the site to which it is transferred; (d) the accounting period in which it was generated. (6) Where a company makes an election under subsection (2), then— (a) if the company elects to transfer the whole of N, no amount is available to be carried forward under section 356EB(2) or (as the case may be) by virtue of section 356GC(3); (b) if the company elects to transfer only part of N, the amount available to be carried forward as mentioned in subsection (1) is reduced by the amount transferred. (7) Where an amount of onshore allowance is transferred to a site as a result of an election, this Chapter has effect as if the allowance is generated at that site at the beginning of the accounting period in which the election is made. (356G) (1) Sections 356GA to 356GD apply to a company in respect of an accounting period and a licensed area that is or contains a site, if the following conditions are met— (a) the company is a licensee in the licensed area for the whole, or for part, of the accounting period; (b) the company has different shares (greater than zero) of the equity in the licensed area at different times during the accounting period. (2) In a case where a company has three or more different shares of the equity in a licensed area during a particular day, sections 356GA to 356GD (in particular, provisions relating to the beginning or end of a day) have effect subject to the necessary modifications. (356GA) (1) For the purposes of sections 356GB to 356GD, the accounting period, or (if the company is not a licensee for the whole of the accounting period) the part or parts of the accounting period for which the company is a licensee, are to be divided into reference periods (each of which “belongs to” the site concerned). (2) A reference period is a period of consecutive days that meets the following conditions— (a) at the beginning of each day in the period, the company is a licensee in the licensed area; (b) at the beginning of each day in the period, the company's share of the equity in the licensed area is the same; (c) each day in the period falls within the accounting period. (356GB) (1) The amount (if any) of activated allowance that a company has with respect to a site for a reference period is the smaller of the following— (a) the company's relevant income from the site in the reference period; (b) the total amount of unactivated allowance that is attributable to the reference period and the site (see section 356GD). (2) The company's relevant income from the site in the reference period is— $$I × R L$where—I is the company's relevant income from the site in the whole of the accounting period;R is the number of days in the reference period;L is the number of days in the accounting period for which the company is a licensee in the licensed area concerned.$ (356GC) (1) If, in the case of a reference period (“RP1”) of a company, the amount mentioned in subsection (1)(b) of section 356GB exceeds the amount mentioned in subsection (1)(a) of that section, an amount equal to the difference between those amounts is treated as onshore allowance held by the company for the site concerned for the next period. (2) If RP1 is immediately followed by another reference period of the company (belonging to the same site), “the next period” means that reference period. (3) If subsection (2) does not apply, “the next period” means the next accounting period of the company. (356GD) (1) For the purposes of section 356GB(1)(b), the total amount of unactivated allowance attributable to a reference period and a site is— $$P + Q − R$where—P is the amount of allowance generated by the company in the reference period at the site (including any amount treated under section 356F(7) or 356HB(1) as generated by the company in that accounting period at that site);Q is the amount given by subsection (2) or (3);R is any amount to be deducted under section 356HA(1) in respect of a disposal of the whole or part of the company's share of the equity in a licensed area that is or contains the site.$ (2) Where the reference period is not immediately preceded by another reference period but is preceded by an accounting period of the company, Q is equal to the amount (if any) that is to be carried forward from that preceding accounting period under section 356EB(2). (3) Where the reference period is immediately preceded by another reference period, Q is equal to the amount carried forward by virtue of section 356GC(2). (356H) (1) Sections 356HA and 356HB apply where a company (“the transferor”)— (a) disposes of the whole or part of its share of the equity in a licensed area that is or contains a site; (b) immediately before the disposal holds (unactivated) onshore allowance for the site concerned. (2) Each company to which a share of the equity is disposed of is referred to in section 356HB as “a transferee”. (356HA) (1) The following amount is to be deducted, in accordance with section 356GD(1), in calculating the total amount of unactivated allowance attributable to a reference period and a site— $$F × E1 − E2 E1$where—F is the pre-transfer total of unactivated allowance for the reference period that ends with the day on which the disposal is made;E1 is the transferor's share of the equity in the licensed area immediately before the disposal;E2 is the transferor's share of the equity in the licensed area immediately after the disposal.$ (2) The “pre-transfer total of unactivated allowance” for a reference period is— $$P + Q$where P and Q are the same as in section 356GD.$ (356HB) (1) A transferee is treated as generating at the site concerned, at the beginning of the reference period or accounting period of the transferee that begins with, or because of, the disposal, onshore allowance of the amount given by subsection (2). (2) The amount is— $$R × E3 E1 − E2$where—R is the amount determined for the purposes of the deduction under section 356HA(1);E3 is the share of equity in the licensed area that the transferee has acquired from the transferor;E1 and E2 are the same as in section 356HA.$ (356I) (1) This section applies if there is any alteration in a company's adjusted ring fence profits for an accounting period after this Chapter has effect in relation to the profits. (2) Any necessary adjustments to the operation of this Chapter (whether in relation to the profits or otherwise) are to be made (including any necessary adjustments to the effect of section 356D on the profits or to the calculation of the amount to be carried forward under section 356DA). (356IA) (1) The Treasury may by order substitute a different percentage for the percentage that is at any time specified in section 356C(2) (calculation of allowance as a percentage of capital expenditure). (2) The Treasury may by order amend the number that is at any time specified in section 356CA(1) or (2) (cap on production, or estimated production, at a site for the purposes of onshore allowance). (3) An order under subsection (1) or (2) may include transitional provision. (356J) (1) References in this Chapter to authorisation of development of a site are to be interpreted as follows in relation to a drilling and extraction site that is situated in, or used in connection with, a licensed area. (2) The references are to be read as references to a national authority— (a) granting a licensee consent for development of the licensed area, (b) serving on a licensee a programme of development for the licensed area, or (c) approving a programme of development for the licensed area. (3) References in subsection (2) to a “licensee” are to a licensee in the licensed area mentioned in subsection (1). (4) In this section— - “consent for development”, in relation to a licensed area, does not include consent which is limited to the purpose of testing the characteristics of an oil-bearing area; - “development”, in relation to a licensed area, means winning oil from the licensed area otherwise than in the course of searching for oil or drilling wells; - “national authority” means— 1. the Secretary of State, or 2. a Northern Ireland Department. (356JA) Section 5 of CAA 2001 (when capital expenditure is incurred) applies for the purposes of this Chapter as for the purposes of that Act. (356JB) In this Chapter (except where otherwise specified)— - “adjusted ring fence profits”, in relation to a company and an accounting period, means the adjusted ring fence profits that would (if this Chapter were ignored) be taken into account in calculating the supplementary charge on the company under section 330(1) for the accounting period (but see also section 356DB); - “cumulative total amount of activated allowance” has the meaning given by section 356D(2); - “licence” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act); - “licensed area” has the same meaning as in Part 1 of OTA 1975; - “licensee” has the same meaning as in Part 1 of OTA 1975; - “onshore allowance” has the meaning given by section 356C(5); - “relevant income”, in relation to an onshore site and an accounting period, has the meaning given by section 356E(3); - “site” has the meaning given by section 356BC.

Restriction of field allowance to offshore fields

4

• (1) Section 352 (meaning of “qualifying oil field”) is amended as follows.

• (2) Renumber section 352 as subsection (1) of section 352.

• (3) In section 352(1) (as renumbered), after “an oil field” insert “ , other than an onshore field, ”.

• (4) After subsection (1) insert—

(2) An oil field is an “onshore field” for the purposes of subsection (1) if— (a) the authorisation day is on or after 5 December 2013, and (b) on the authorisation day every part of the oil field is, or is part of, an onshore licensed area; but see the transitional provisions in paragraph 7 of Schedule 15 to FA 2014. (3) A licensed area is an “onshore licensed area” if it falls within the definition of “landward area” in the regulations pursuant to which the application for the licence was made.

PART 2 — Minor and consequential amendments

5

• (1) CTA 2010 is amended as follows.

• (2) In section 270 (overview of Part)—

• (a) after subsection (7) insert—

(7A) Chapter 8 makes provision about the reduction of supplementary charge by an allowance for capital expenditure incurred for the purposes of onshore oil-related activities.

;

• (b) in subsection (8)(c), for “357” substitute “ 356AA ”.

• (3) In section 333 (reduction of adjusted ring fence profits)—

• (a) in subsection (1), after “reduced” insert “ (but not below zero) ”;

• (b) omit subsection (2).

• (4) In section 356AA (as renumbered by paragraph 2)(definitions for Chapter 7), in the definition of “adjusted ring fence profits”, at the end insert “ ; but see also section 356DB (companies with allowances under Chapter 8 as well as this Chapter) ”.

• (5) In Schedule 4 (index of defined expressions)—

• (a) at the appropriate places insert—

adjusted ring fence profits (in Chapter 8 of Part 8)	section 356JB

;

cumulative total amount of activated allowance (in Chapter 8 of Part 8)	section 356JB

;

onshore allowance (in Chapter 8 of Part 8)	section 356JB

;

onshore oil-related activities (in Chapter 8 of Part 8)	section 356BA

;

relevant income (in Chapter 8 of Part 8)	section 356E(3)

;

site (in Chapter 8 of Part 8)	section 356BC

;

• (b) in the entries for “adjusted ring fence profits”, “authorisation day”, “eligible oil field”, “licensee” and “relevant income” (in each case, as those expressions are defined for Chapter 7 of Part 8 of CTA 2010), for “357” substitute “ 356AA ”.

PART 3 — Commencement and transitional provision

Commencement of onshore allowance

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• (1) The amendments made by paragraphs 3 and 5(1), (2)(a), (3) and (4) have effect in relation to capital expenditure incurred on or after 5 December 2013.

• (2) The amendments made by paragraph 4 have effect in relation to any accounting period of a company in which a post-commencement authorisation day falls.

• (3) In sub-paragraph (2) “post-commencement authorisation day” means an authorisation day (as defined for Chapter 7 of Part 8 of CTA 2010) that is 5 December 2013 or a later day.

• (4) Section 5 of CAA 2001 (when capital expenditure is incurred) applies for the purposes of this paragraph as for the purposes of that Act.

Option to defer commencement

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• (1) This paragraph applies in relation to any oil field whose development (in whole or in part) is authorised for the first time on or after 5 December 2013 but before 1 January 2015.

• (2) At any time before 1 January 2015, the companies that are licensees in the oil field may jointly elect that the law is to have effect in relation to each of those companies as if the date specified in—

• (a) section 352(2)(a) of CTA 2010 (as inserted by paragraph 4(4) of this Schedule),

• (b) section 356C(3) of CTA 2010 (as inserted by paragraph 3 of this Schedule), and

• (c) paragraph 6(3),

were 1 January 2015.

• (3) Expressions used in this paragraph and in Chapter 7 of Part 8 of CTA 2010 have the same meaning in this paragraph as in that Chapter.

Straddling accounting periods

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• (1) Paragraphs 9 and 10 apply where a company has an accounting period (the “straddling accounting period”) that begins before and ends on or after commencement day.

• (2) In paragraphs 9 and 10 “commencement day” means—

• (a) 5 December 2013 (except where paragraph (b) applies);

• (b) 1 January 2015, in relation to a company that makes an election under paragraph 7.

• (3) Expressions used in paragraph 9 or 10 and in Chapter 8 of Part 8 of CTA 2010 (as inserted by paragraph 3) have the same meaning in the paragraph concerned as in that Chapter.

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• (1) The amount (if any) by which the company's adjusted ring fence profits for the straddling accounting period are reduced under section 356D of CTA 2010 (as inserted by paragraph 3) cannot exceed the appropriate proportion of those profits.

• (2) Section 356DA of CTA 2010 (carrying forward of activated allowance) applies in relation to the company and the accounting period as if the reference in subsection (1)(b) of that section to the adjusted ring fence profits were to the appropriate proportion of those profits.

• (3) The “appropriate proportion” of the company's adjusted ring fence profits for the straddling accounting period is—

$$D Y × N$where—D is the number of days in the straddling accounting period that fall on or after commencement day;Y is the number of days in the straddling accounting period;N is the amount of the company's adjusted ring fence profits for the accounting period.$

• (4) If the basis of apportionment in sub-paragraph (3) would work unjustly or unreasonably in the company's case, the company may elect for its adjusted ring fence profits to be apportioned on another basis that is just and reasonable and specified in the election.

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• (1) For the purpose of determining the amount of activated allowance the company has with respect to any site—

• (a) for the straddling accounting period (see section 356E of CTA 2010, as inserted by paragraph 3), or

• (b) for a reference period that is part of the straddling accounting period (see section 356GB of CTA 2010, as so inserted),

the company's relevant income from the site in the straddling accounting period is taken to be the appropriate proportion of the actual amount of that relevant income.

• (2) Accordingly, in relation to the company, the straddling accounting period and the site in question, section 356EB of CTA 2010 (carrying forward of unactivated allowance) has effect as if Y in subsection (1) of that section were defined as the appropriate proportion of the company's relevant income for the straddling accounting period from that site.

• (3) The “appropriate proportion” of the company's relevant income from a site in the straddling accounting period is—

$$D Y × I$D is the number of days in the straddling accounting period that fall on or after commencement day;Y is the number of days in the straddling accounting period;I is the amount of the company's relevant income from the site in the straddling accounting period.$

• (4) If the basis of apportionment in sub-paragraph (3) would work unjustly or unreasonably in the company's case, the company may elect for its adjusted ring fence profits to be apportioned on another basis that is just and reasonable and specified in the election.

SCHEDULE 16

CTA 2010

1

CTA 2010 is amended as follows.

2

In section 1 (overview of Act), in subsection (3), after paragraph (a) insert—

(aa) oil contractor activities (see Part 8ZA), (ab) profits arising from the exploitation of patents etc (see Part 8A),

.

3

In Chapter 4 of Part 8 (oil activities: calculation of profits), after section 285 insert—

(285A) (1) This section applies if— (a) oil contractor activities are, or are to be, carried out, and (b) a company that carries on a ring fence trade makes, or is to make, one or more payments under a lease of a relevant asset, or part of a relevant asset, which is, or is to be, provided, operated or used in the relevant offshore service in question. (2) The total amount that may be brought into account in respect of the payments for the purposes of calculating the company's ring fence profits in an accounting period is limited to the hire cap. (3) The “hire cap” is an amount equal to the relevant percentage of TC for the accounting period, subject to subsection (4). (4) If payments in relation to which subsection (2) or section 356N(2) (restriction on hire for oil contractors under Part 8ZA) applies are also made, or to be made, by one or more other companies in respect of the relevant asset or part, the “hire cap” is to be such proportion of the amount mentioned in subsection (3) as is just and reasonable, having regard (in particular) to the amounts of the payments made, or to be made, by each company. (5) The “relevant percentage” and TC are to be determined in accordance with section 356N(5) to (16). (6) To the extent that, by virtue of this section, payments within subsection (1)(b) cannot be brought into account for the purposes of calculating the company's ring fence profits in an accounting period, the payments may be— (a) allowed as a deduction from the company's total profits for the accounting period, or (b) treated as a surrenderable amount of the company for the accounting period for the purposes of Part 5 (group relief) (see section 99(7)) as if they were a trading loss, but this is subject to subsection (7). (7) No deduction may be made by virtue of subsection (6) from total profits so far as they are ring fence profits or contractor's ring fence profits. (8) If the company or an associated person enters into arrangements the main purpose or one of the main purposes of which is to secure that subsection (2) does not apply in relation to one or more payments to any extent, that subsection applies in relation to the payments to the extent that it would not otherwise do so. (9) In subsection (8) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable). (10) In this section— - “associated person” has the meaning given by section 356LB; - “contractor's ring fence profits” has the meaning given by section 356LD; - “oil contractor activities” and “relevant offshore service” have the meaning given by section 356L; - “relevant asset” has the meaning given by section 356LA; - “lease” has the meaning given by section 868.

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After Part 8 (oil activities) insert—

(356K) (1) This Part is about the corporation tax treatment of oil contractor activities. (2) Chapter 2 contains basic definitions used in this Part. (3) Chapter 3 treats oil contractor activities as a separate trade. (4) Chapter 4 makes provision about the calculation of profits from oil contractor activities. (5) For the meaning of oil contractor activities, see section 356L. (356L) (1) The definitions in this section have effect for the purposes of this Part. (2) “Oil contractor activities” means activities carried on by a company (“the contractor”), which are not oil-related activities (within the meaning of section 274), but are— (a) exploration or exploitation activities in, or in connection with, which the contractor provides, operates or uses a relevant asset (see section 356LA) in a relevant offshore service, or (b) otherwise carried on in, or in connection with, the provision by the contractor of a relevant offshore service. (3) The contractor provides a “relevant offshore service” if the contractor provides, operates or uses a relevant asset in, or in connection with, the carrying on of exploration or exploitation activities in a relevant offshore area by the contractor or any other associated person. (4) “Exploration or exploitation activities” means activities carried on in connection with the exploration or exploitation of the seabed and subsoil and their natural resources. (5) “Relevant offshore area” means— (a) the territorial sea of the United Kingdom; (b) the areas designated by Order in Council under section 1(7) of the Continental Shelf Act 1964. (356LA) (1) In this Part “relevant asset” means an asset within subsection (2) in respect of which conditions A and B are met. (2) An asset is within this subsection if it is a structure that— (a) can be moved from place to place (whether or not under its own power) without major dismantling or modification, and (b) can be used to— (i) drill for the purposes of searching for, or extracting, oil, or (ii) provide accommodation for individuals who work on or from another structure used in a relevant offshore area for, or in connection with, exploration or exploitation activities (“offshore workers”). (3) But an asset is not within subsection (2)(b)(ii) if it is reasonable to suppose that its use to provide accommodation for offshore workers is unlikely to be more than incidental to another use, or other uses, to which the asset is likely to be put. (4) In subsection (2)— - “oil” means any substance 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; - “structure” includes a ship or other vessel. (5) Condition A is that the asset, or any part of the asset, is leased (whether by the contractor or not) from an associated person other than the contractor. (6) Condition B is that the asset is of the requisite value. (7) The asset is of the “requisite value” if its market value is £2,000,000 or more. (8) The Treasury may by regulations modify the meaning of “requisite value”. (9) Regulations under subsection (8) may— (a) amend this section, (b) make different provision for different cases or different purposes, and (c) make incidental, consequential, supplementary or transitional provision or savings. (356LB) (1) For the purposes of this Part each of the following is an “associated person”— (a) the contractor, (b) any person who is, or has been, connected with the contractor, (c) any person who has acted, acts or is to act, together with the contractor to provide a service, and (d) any person who is connected with a person falling within paragraph (b) or (c). (2) A person does not act together with the contractor to provide a service by reason only of leasing an asset, to any person, which is provided, operated or used in the service. (356LC) In this Part “lease” has the meaning given by section 868 and “leased” and “leasing” are to be construed accordingly. (356LD) In this Part the “contractor's ring fence profits”, in relation to an accounting period, means the contractor's income arising from oil contractor activities for that period. (356M) If the contractor carries on oil contractor activities as part of a trade, those activities are treated for the purposes of the charge to corporation tax on income as a separate trade, distinct from all other activities carried on by the contractor as part of the trade. (356N) (1) This section applies if the contractor makes, or is to make, one or more payments under a lease of— (a) a relevant asset, or (b) part of a relevant asset. (2) The total amount that may be brought into account in respect of the payments for the purposes of calculating the contractor's ring fence profits in an accounting period is limited to the hire cap. (3) The “hire cap” is an amount equal to the relevant percentage of TC for the accounting period, subject to subsection (4). (4) If payments in relation to which subsection (2) or section 285A(2) (restriction on hire for company carrying on a ring fence trade under Part 8) applies are also made, or to be made, by one or more other companies in respect of the relevant asset or part, the “hire cap” is to be such proportion of the amount mentioned in subsection (3) as is just and reasonable, having regard (in particular) to the amounts of the payments made, or to be made, by the contractor and each other company. (5) Subject to subsection (7), the “relevant percentage” is— $$UROS TU × 7.5 %$where—UROS is the number of days in the accounting period that the relevant asset is provided, operated or used in a relevant offshore service, andTU is the number of days in the accounting period that the relevant asset is provided, operated or used (whether or not in a relevant offshore service).$ (6) Accordingly, the relevant percentage is zero if the relevant asset is not provided, operated or used in the accounting period. (7) If the accounting period is less than 12 months, the relevant percentage is to be proportionally reduced. (8) TC is— $OC + CE$ (9) Unless subsection (11) applies, OC is the sum of— (a) any consideration given for the acquisition of the relevant asset or part when it was first acquired by an associated person, and (b) any expenses incurred by an associated person in connection with that acquisition (other than the costs of financing the acquisition). This is subject to subsections (12) and (13). (10) Subsection (11) applies if the relevant asset or part— (a) is leased by an associated person from a person who is not an associated person, and (b) has never been owned by an associated person. (11) OC is the sum of— (a) the consideration that it is reasonable to suppose would have been given for the acquisition of the relevant asset or part, if it had been acquired by an associated person by way of a bargain at arm's length at the time it was first leased as mentioned in subsection (10)(a), and (b) the expenses (other than the costs of financing the acquisition) that it is reasonable to suppose would have been incurred by an associated person in connection with such an acquisition. This is subject to subsections (12) and (13). (12) If the relevant asset or part was first acquired by an associated person, or (as the case may be) first leased as mentioned in subsection (10)(a), before the beginning of the accounting period, OC does not include any part of the consideration mentioned in subsection (9)(a) or (as the case may be) (11)(a) that it is reasonable to attribute to anything that no longer forms part of the relevant asset or part at the beginning of the accounting period. (13) If the relevant asset or part was first acquired by an associated person, or (as the case may be) first leased as mentioned in subsection (10)(a), in the accounting period, OC for the accounting period is— $$OC × D − DBA D$where—D is the total number of days in the accounting period,DBA is the number of days in the accounting period before the day on which the relevant asset or part was first acquired or first leased, andOC is the amount given by subsection (9) or (as the case may be) (11).$ (14) CE is capital expenditure on the relevant asset or part (other than capital expenditure in respect of its acquisition or the acquisition of a lease of it) incurred by an associated person— (a) after it was first acquired by an associated person or (as the case may be) was first leased as mentioned in subsection (10)(a), and (b) before the end of the accounting period. This is subject to subsections (15) and (16). (15) CE does not include any capital expenditure mentioned in subsection (14) that is— (a) incurred before the beginning of the accounting period, and (b) not reflected in the state or nature of the relevant asset or part at the beginning of the accounting period. (16) If any capital expenditure mentioned in subsection (14) is incurred on a day in the accounting period, the amount of CE for the accounting period in respect of that capital expenditure is— $$CEA × D − DBI D$where—D is the total number of days in the accounting period,DBI is the number of days in the accounting period before the day on which that capital expenditure is incurred, andCEA is the amount of that capital expenditure.$ (356NA) (1) The Treasury may by regulations modify the “relevant percentage” for the purposes of section 356N or 285A. (2) Regulations under subsection (1) may— (a) amend section 356N or section 285A, (b) make different provision for different cases or different purposes, and (c) make incidental, consequential, supplementary or transitional provision or savings. (3) To the extent that, by virtue of section 356N, payments within subsection (1) of that section cannot be brought into account for the purposes of calculating the contractor's ring fence profits in an accounting period, the payments may be— (a) allowed as a deduction from the contractor's total profits for the accounting period, or (b) treated as a surrenderable amount of the contractor for the accounting period for the purposes of Part 5 (group relief) (see section 99(7)) as if they were a trading loss, subject to subsection (4). (4) No deduction may be made by virtue of subsection (3) from total profits so far as they are contractor's ring fence profits or ring fence profits for the purposes of Part 8. (5) If an associated person enters into arrangements the main purpose or one of the main purposes of which is to secure that section 356N(2) does not apply in relation to one or more payments to any extent, that provision applies in relation to the payments to the extent it would not otherwise do so. (6) In subsection (5) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable). (356NB) (1) Debits may not be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of the contractor's loan relationships in any way that results in a reduction of what would otherwise be the contractor's ring fence profits, but this is subject to subsections (2) to (4). (2) Subsection (1) does not apply so far as a loan relationship is in respect of money borrowed by the contractor which has been— (a) used to meet expenditure incurred by the contractor in carrying on oil contractor activities, or (b) appropriated to meeting expenditure to be so incurred by the contractor. (3) Subsection (1) does not apply, in the case of debits falling to be brought into account as a result of section 329 of CTA 2009 (pre-loan relationship and abortive expenses) in respect of a loan relationship that has not been entered into, so far as the relationship would have been one entered into for the purpose of borrowing money to be used or appropriated as mentioned in subsection (2). (4) Subsection (1) does not apply, in the case of debits in respect of a loan relationship to which Chapter 2 of Part 6 of CTA 2009 (relevant non-lending relationships) applies, so far as— (a) the payment of interest under the relationship is expenditure incurred as mentioned in subsection (2)(a), or (b) the exchange loss arising from the relationship is in respect of a money debt on which the interest payable (if any) is, or would be, such expenditure. (5) If a debit— (a) falls to be brought into account for the purposes of Part 5 of CTA 2009 in respect of a loan relationship of the contractor, but (b) as a result of this section cannot be brought into account in a way that results in any reduction of what would otherwise be the contractor's ring fence profits, the debit is to be brought into account for those purposes as a non-trading debit despite anything in section 297 of that Act. (6) References in this section to a loan relationship, in relation to the borrowing of money, do not include a relationship to which Chapter 2 of Part 6 of CTA 2009 (relevant non-lending relationships) applies. (356NC) (1) Credits in respect of exchange gains from the contractor's loan relationships may not be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in any way that results in an increase of what would otherwise be the contractor's ring fence profits, but this is subject to subsections (2) to (4). (2) Subsection (1) does not apply so far as a loan relationship is in respect of money borrowed by the contractor which has been— (a) used to meet expenditure incurred by the contractor in carrying on oil contractor activities, or (b) appropriated to meeting expenditure to be so incurred by the contractor. (3) Subsection (1) does not apply, in the case of credits falling to be brought into account as a result of section 329 of CTA 2009 (pre-loan relationship and abortive expenses) in respect of a loan relationship that has not been entered into, so far as the relationship would have been one entered into for the purpose of borrowing money to be used or appropriated as mentioned in subsection (2). (4) Subsection (1) does not apply, in the case of credits in respect of a loan relationship to which Chapter 2 of Part 6 of CTA 2009 (relevant non-lending relationships) applies, so far as— (a) the payment of interest under the relationship is expenditure incurred as mentioned in subsection (2)(a), or (b) the exchange gain arising from the relationship is in respect of a money debt on which the interest payable (if any) is, or would be, such expenditure. (5) If a credit— (a) falls to be brought into account for the purposes of Part 5 of CTA 2009 in respect of a loan relationship of the contractor, but (b) as a result of this section cannot be brought into account in a way that results in any increase of what would otherwise be the contractor's ring fence profits, the credit is to be brought into account for those purposes as a non-trading credit despite anything in section 297 of that Act. (6) Section 356NB(6) applies for the purposes of this section. (356ND) No deduction under section 1219 of CTA 2009 (expenses of management of a company's investment business) is to be allowed from the contractor's ring fence profits. (356NE) Relief in respect of a loss incurred by the contractor may not be given under section 37 (relief for trade losses against total profits) against the contractor's ring fence profits except so far as the loss arises from oil contractor activities. (356NF) (1) On a claim for group relief made by a claimant company in relation to a surrendering company, group relief may not be allowed against the claimant company's contractor's ring fence profits except so far as the claim relates to losses incurred by the surrendering company that arose from oil contractor activities. (2) In section 105 (restriction on surrender of losses etc within section 99(1)(d) to (g)) the references to the surrendering company's gross profits of the surrender period do not include the company's relevant contractor's ring fence profits for that period. (3) The company's “relevant contractor's ring fence profits” for that period are— (a) if for that period there are no qualifying charitable donations made by the company that are allowable under Part 6 (charitable donations relief), the company's contractor's ring fence profits for that period, or (b) otherwise, so much of the contractor's ring fence profits of the company for that period as exceeds the amount of the qualifying charitable donations made by the company that are allowable under section 189 for that period. (4) In this section “claimant company” and “surrendering company” are to be read in accordance with Part 5 (group relief) (see section 188). (356NG) A capital allowance may not to any extent be given effect under section 259 or 260 of CAA 2001 (special leasing) by deduction from the contractor's ring fence profits.

5

In Schedule 4 (index of defined expressions), insert the following entries at the appropriate places—

associated person (in Part 8ZA)	section 356LB
contractor (in Part 8ZA)	section 356L(2)
---	---
contractor's ring fence profits (in Part 8ZA)	section 356LD
---	---
exploration or exploitation activities (in Part 8ZA)	section 356L(4)
---	---
lease (in Part 8ZA)	section 356LC
---	---
oil contractor activities (in Part 8ZA)	section 356L(2)
---	---
relevant asset (in Part 8ZA)	section 356LA
---	---
relevant offshore area (in Part 8ZA)	section 356L(5)
---	---
relevant offshore service (in Part 8ZA)	section 356L(3)
---	---

Commencement etc

6

This Schedule is to be treated as having come into force on 1 April 2014 (“the commencement date”).

7

Section 356L of CTA 2010 has effect in relation to activities carried out on or after the commencement date.

8

• (1) If, on the commencement date, a company was carrying on a trade that consisted of, or included, carrying out oil contractor activities, an accounting period ends (if it would not otherwise do so) with 31 March 2014.

• (2) Sub-paragraph (3) applies if—

• (a) but for sub-paragraph (1), a company would have had an accounting period that began before the commencement date and ended on or after that date (“the split accounting period”), and

• (b) the company's accounting period beginning with 1 April 2014 ends when the split accounting period would have ended but for that sub-paragraph.

• (3) For the purposes of Chapter 4 of Part 22 of CTA 2010 (surrender of tax refund within group)—

• (a) the company is to be treated as having the split accounting period,

• (b) any tax refund due to the company for—

• (i) the accounting period ending with 31 March 2014, or

• (ii) the accounting period beginning with 1 April 2014,

is to be treated as if it were a tax refund due to the company for the split accounting period, and

• (c) if the company surrenders a tax refund that is so treated (or part of such a refund), the references in section 964(6) of CTA 2010 to the date on which corporation tax became due and payable are to be treated as references to the date on which corporation tax would have become due and payable had the company had the split accounting period.

9

• (1) A company may be given relief under section 45 of CTA 2010 (carry forward of trade loss against subsequent trade profits) for a loss made in an accounting period ending before the commencement date against profits of a ring fence trade so far as (and only so far as) the loss would have been a loss of the ring fence trade had section 356L of that Act had effect in relation to activities carried out before the commencement date and Part 8ZA therefore applied.

• (2) In sub-paragraph (1) “ring fence trade” means oil contractor activities that constitute a separate trade (whether by virtue of section 356M of that Act or otherwise).

SCHEDULE 17

PART 1 — Limited liability partnerships: treatment of salaried members

Main provision

1

In Part 9 of ITTOIA 2005 (partnerships) after section 863 (limited liability partnerships) insert—

(863A) (1) Subsection (2) applies at any time when conditions A to C in sections 863B to 863D are met in the case of an individual (“M”) who is a member of a limited liability partnership in relation to which section 863(1) applies. (2) For the purposes of the Income Tax Acts— (a) M is to be treated as being employed by the limited liability partnership under a contract of service instead of being a member of the partnership, and (b) accordingly, M's rights and duties as a member of the limited liability partnership are to be treated as rights and duties under that contract of service. (3) This section needs to be read with section 863G (anti-avoidance). (863B) (1) The question of whether condition A is met is to be determined at the following times— (a) if relevant arrangements are in place— (i) at the beginning of the tax year 2014-15, or (ii) if later, when M becomes a member of the limited liability partnership, at the time mentioned in sub-paragraph (i) or (ii) (as the case may be); (b) at any subsequent time when relevant arrangements are put in place or modified; (c) where— (i) the question has previously been determined, and (ii) the relevant arrangements which were in place at the time of the previous determination do not end, and are not modified, by the end of the period which was the relevant period for the purposes of the previous determination (see step 1 in subsection (3)), immediately after the end of that period. (2) “Relevant arrangements” means arrangements under which amounts are to be, or may be, payable by the limited liability partnership in respect of M's performance of services for the partnership in M's capacity as a member of the partnership. (3) Take the following steps to determine whether condition A is met at a time (“the relevant time”). - Step 1 Identify the relevant period by reference to the relevant arrangements which are in place at the relevant time.“The relevant period” means the period— 1. beginning with the relevant time, and 2. ending at the time when, as at the relevant time, it is reasonable to expect that the relevant arrangements will end or be modified. - Step 2 Condition A is met if, at the relevant time, it is reasonable to expect that at least 80% of the total amount payable by the limited liability partnership in respect of M's performance during the relevant period of services for the partnership in M's capacity as a member of the partnership will be disguised salary. An amount within the total amount is “disguised salary” if it— 1. is fixed, 2. is variable, but is varied without reference to the overall amount of the profits or losses of the limited liability partnership, or 3. is not, in practice, affected by the overall amount of those profits or losses. (4) If condition A is determined to be met, or not to be met, at a time, the condition is to be treated as met, or as not met, at all subsequent times until the question is required to be re-determined under subsection (1)(b) or (c). (5) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable). (863C) Condition B is that the mutual rights and duties of the members of the limited liability partnership, and of the partnership and its members, do not give M significant influence over the affairs of the partnership. (863D) (1) Condition C is that, at the time at which it is being determined whether the condition is met (“the relevant time”), M's contribution to the limited liability partnership (see sections 863E and 863F) is less than 25% of the amount given by subsection (2) (subject to subsection (7)). (2) That amount is the total amount of the disguised salary which, at the relevant time, it is reasonable to expect will be payable by the limited liability partnership in respect of M's performance during the relevant tax year of services for the partnership in M's capacity as a member of the partnership. In this section “the relevant tax year” means the tax year in which the relevant time falls and an amount is “disguised salary” if it falls within any of paragraphs (a) to (c) at step 2 in section 863B(3). (3) The question of whether condition C is met is to be determined— (a) at the beginning of the tax year 2014-15 or, if later, the time at which M becomes a member of the limited liability partnership; (b) after that, at the beginning of each tax year. (4) If in a tax year— (a) there is a change in M's contribution to the limited liability partnership, or (b) there is otherwise a change of circumstances which might affect the question of whether condition C is met, the question of whether the condition is met is to be re-determined at the time of the change. This subsection is subject to section 863F(3). (5) If condition C is determined to be met (including by virtue of subsection (7)), or not to be met, at the relevant time, the condition is to be treated as met, or as not met, at all subsequent times until the question is required to be re-determined under subsection (3)(b) or (4). (6) Subsection (7) applies if— (a) the relevant time coincides with an increase in M's contribution to the limited liability partnership, and (b) apart from subsection (7), that increase would cause condition C not to be met at the relevant time. (7) Condition C is to be treated as met at the relevant time unless, at that time, it is reasonable to expect that condition C will not be met for the remainder of the relevant tax year (ignoring this subsection). (8) If there are any excluded days in the relevant tax year (see subsections (9) to (11)), in subsection (1) the reference to M's contribution to the limited liability partnership is to be read as a reference to that contribution multiplied by the following fraction— $$D – E D$where—D is the number of days in the relevant tax year, andE is the number of excluded days in the relevant tax year.$ (9) Any day in the relevant tax year— (a) which is before the day on which the relevant time falls, and (b) on which M is not a member of the limited liability partnership, is an “excluded” day for the purposes of subsection (8). (10) If, at the relevant time, it is reasonable to expect that M will not be a member of the limited liability partnership for the remainder of the relevant tax year, any day in the relevant tax year— (a) which is after the day on which the relevant time falls, and (b) on which it is reasonable to expect that M will not be a member of the limited liability partnership, is an “excluded” day for the purposes of subsection (8). (11) If the relevant time coincides with an increase in M's contribution to the limited liability partnership, any day in the relevant tax year— (a) which is before the day on which the relevant time falls, and (b) on which condition C is met, is an “excluded” day for the purposes of subsection (8). (12) In subsections (6) and (11) references to an increase in M's contribution to the limited liability partnership include (in particular)— (a) the making of M's first contribution to the capital of the limited liability partnership, and (b) M being treated as having made a contribution by section 863F(2). (863E) (1) For the purposes of condition C in section 863D M's contribution to the limited liability partnership at a time is amount A. (2) Amount A is the total amount which M has contributed to the limited liability partnership as capital less so much of that amount (if any) as is within subsection (6). (3) In particular, M's share of any profits of the limited liability partnership is to be included in the amount which M has contributed to the partnership as capital so far as that share has been added to the partnership's capital. (4) In subsection (3) the reference to profits is to profits calculated in accordance with generally accepted accounting practice (before any adjustment required or authorised by law in calculating profits for income tax purposes). (5) Subsection (3) applies as well for the purpose of construing references to contributions to the capital of the limited liability partnership in sections 863D(12)(a) and 863F. (6) An amount of capital is within this subsection if it is an amount which— (a) M has previously drawn out or received back, (b) M is or may be entitled to draw out or receive back at any time when M is a member of the limited liability partnership, or (c) M is or may be entitled to require another person to reimburse to M. (7) In subsection (6) any reference to drawing out or receiving back an amount is to doing so directly or indirectly. (863F) (1) This section applies if— (a) by the time mentioned in section 863D(3)(a), M has given an undertaking (whether or not legally enforceable) to make a contribution to the capital of the limited liability partnership but has not made the contribution, (b) the undertaking requires M to make the contribution by the end of— (i) the period of 3 months ending with 5 July 2014, or (ii) if it ends after that date, the period of 2 months beginning with the date on which M becomes a member of the limited liability partnership, and (c) when it is made, the contribution will be included in amount A under section 863E. In the following subsections “the relevant period” means the period mentioned in paragraph (b)(i) or (ii) (as the case may be). (2) For the purpose of determining whether condition C in section 863D is met— (a) at the time mentioned in section 863D(3)(a), or (b) at any subsequent time during the relevant period, M is to be treated as having made the contribution at the time mentioned in section 863D(3)(a) (so far as M has not (actually) made the contribution at the time at which it is being determined whether condition C is met). (3) If M (actually) makes the contribution (in whole or in part) during the relevant period, the question of whether condition C is met is not to be re-determined under section 863D(4) just because of the making of the contribution (in whole or in part). (4) If M does not (actually) make the contribution (in whole or in part) by the end of the relevant period, any determination in relation to which subsection (2) applied is to be made again (as at the time at which it was originally made). (5) In making a determination again— (a) if it is the whole of the contribution which M does not make by the end of the relevant period, subsection (2) is to be ignored; (b) if M makes part of the contribution by the end of the relevant period, in subsection (2) references to the contribution are to be read as references to that part of it. (863G) (1) In determining whether section 863A(2) applies in the case of an individual who is a member of a limited liability partnership, no regard is to be had to any arrangements the main purpose, or one of the main purposes, of which is to secure that section 863A(2) does not apply in the case of— (a) the individual, or (b) the individual and one or more other individuals. (2) Subsection (4) applies if— (a) an individual (“X”) personally performs services for a limited liability partnership at a time when X is not a member of the partnership, (b) X performs the services under arrangements involving a member of the limited liability partnership (“Y”) who is not an individual, (c) the main purpose, or one of the main purposes, of those arrangements is to secure that section 863A(2) does not apply in the case of X or in the case of X and one or more other individuals, and (d) in relation to X's performance of the services, an amount falling within subsection (3) arises to Y in respect of Y's membership of the limited liability partnership. (3) An amount falls within this subsection if— (a) were X performing the services under a contract of service by which X were employed by the limited liability partnership, and (b) were the amount to arise to X directly from the limited liability partnership, the amount would be employment income of X in respect of the employment. (4) If this subsection applies, in relation to X's performance of the services, X is to be treated on the following basis— (a) X is a member of the limited liability partnership in whose case section 863A(2) applies, (b) the amount arising to Y arises instead to X directly from the limited liability partnership, (c) that amount is employment income of X in respect of the employment under section 863A(2) accordingly, and (d) neither that amount, nor any amount representing that amount, is to be income of X for income tax purposes on any other basis. (4A) Section 863A(2) does not apply in the case of a member of a limited liability partnership if, apart from this subsection, it would apply in consequence of arrangements the main purpose, or one of the main purposes, of which is to secure that section 850C does not apply for one or more periods of account in relation to— (a) the member, or (b) the member and one or more other members of the limited liability partnership. (5) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

2

In Part 17 of CTA 2009 (partnerships) after section 1273 (limited liability partnerships) insert—

(1273A) (1) Subsection (2) applies at any time when section 863A(2) of ITTOIA 2005 (limited liability partnerships: salaried members) applies in the case of an individual (“M”) who is a member of a limited liability partnership in relation to which section 1273(1) applies. (2) In relation to the charge to corporation tax on income, for the purposes of the Corporation Tax Acts— (a) M is to be treated as being employed by the limited liability partnership under a contract of service instead of being a member of the partnership, and (b) accordingly, M's rights and duties as a member of the limited liability partnership are to be treated as rights and duties under that contract of service.

Supplementary provision: deductions

3

• (1) ITTOIA 2005 is amended as follows.

• (2) At the end of Chapter 5 of Part 2 (trade profits: rules allowing deductions) insert—

(94AA) (1) This section applies in relation to a limited liability partnership if section 863A(2) (limited liability partnerships: salaried members) applies in the case of a member of the partnership (“M”). (2) In calculating for a period of account under section 849 (calculation of firm's profits and losses) the profits of a trade carried on by the limited liability partnership, a deduction is allowed for expenses paid by the partnership in respect of M's employment under section 863A(2) if no deduction would otherwise be allowed for the payment. (3) This section is subject to section 33 (capital expenditure), section 34 (expenses not wholly and exclusively for trade etc), section 45 (business entertainment and gifts) and section 53 (social security contributions).

• (3) In Chapter 3 of Part 3 (profits of property businesses: basic rules), in the table in section 272(2) (application of trading income rules), after the entry for section 94A insert—

section 94AA	deductions in relation to salaried members of limited liability partnerships

.

4

• (1) CTA 2009 is amended as follows.

• (2) At the end of Chapter 5 of Part 3 (trade profits: rules allowing deductions) insert—

(92A) (1) This section applies in relation to a limited liability partnership if section 1273A(2) (limited liability partnerships: salaried members) applies in the case of a member of the partnership (“M”). (2) In calculating for an accounting period under section 1259 (calculation of firm's profits and losses) the profits of a trade carried on by the limited liability partnership, a deduction is allowed for expenses paid by the partnership in respect of M's employment under section 1273A(2) if no deduction would otherwise be allowed for the payment. (3) This section is subject to— (a) section 53 (capital expenditure), (b) section 54 (expenses not wholly and exclusively for trade etc), (c) section 1298 (business entertainment and gifts), and (d) section 1302 (social security contributions).

• (3) In Chapter 3 of Part 4 (profits of property businesses: basic rules), in the table in section 210(2) (application of trading income rules), after the entry for section 92 insert—

section 92A	deductions in relation to salaried members of limited liability partnerships

.

• (4) In Chapter 2 of Part 16 (companies with investment business: management expenses)—

• (a) in section 1224(1) (accounting period to which expenses are referable) for “1227” substitute “ 1227A ”, and

• (b) after section 1227 insert—

(1227A) (1) This section applies in relation to a company if— (a) as a member of a limited liability partnership, the company is a company with investment business, (b) section 1273A(2) (limited liability partnerships: salaried members) applies in the case of a member of the partnership (“M”), and (c) expenses of management of the company's investment business are paid in respect of M's employment under section 1273A(2) but are not referable to any accounting period under sections 1225 to 1227. (2) The expenses are to be treated as referable to the accounting period in which they are paid.

Supplementary provision: arrangements made by intermediaries

5

In Chapter 8 of Part 2 of ITEPA 2003 (application of provisions to workers under arrangements made by intermediaries) in section 54 (deemed employment payment) after subsection (1) insert—

(1A) For the purposes of step 1 of subsection (1), any payment or benefit which is employment income of the worker by virtue of section 863G(4) of ITTOIA 2005 (salaried members of limited liability partnerships: anti-avoidance) is to be ignored.

Commencement

6

• (1) Subject to what follows, the amendments made by this Part are treated as having come into force on 6 April 2014.

• (2) Section 863G(4A) of ITTOIA 2005 (as inserted by paragraph 1) comes into force on the day after the day on which this Act is passed.

PART 2 — Partnerships with mixed membership

Main provision

7

• (1) Part 9 of ITTOIA 2005 (partnerships) is amended as follows.

• (2) In section 850 (allocation of firm's profits and losses between partners) in subsection (1) for “and 850B” substitute “ to 850D ”.

• (3) After section 850B insert—

(850C) (1) Subsections (4) and (5) apply if— (a) for a period of account (“the relevant period of account”)— (i) the calculation under section 849 in relation to an individual partner (“A”) (see subsection (6)) produces a profit for the firm, and (ii) A's share of that profit determined under section 850 or 850A (“A's profit share”) is a profit or is neither a profit nor a loss, (b) a non-individual partner (“B”) (see subsection (6)) has a share of the profit for the firm mentioned in paragraph (a)(i) (“B's profit share”) which is a profit (see subsection (7)), and (c) condition X or Y is met. (2) Condition X is that it is reasonable to suppose that— (a) amounts representing A's deferred profit (see subsection (8)) are included in B's profit share, and (b) in consequence, both A's profit share and the relevant tax amount (see subsection (9)) are lower than they would otherwise have been. (3) Condition Y is that— (a) B's profit share exceeds the appropriate notional profit (see subsections (10) to (17)), (b) A has the power to enjoy B's profit share (“A's power to enjoy”) (see subsections (18) to (21)), and (c) it is reasonable to suppose that— (i) the whole or any part of B's profit share is attributable to A's power to enjoy, and (ii) both A's profit share and the relevant tax amount (see subsection (9)) are lower than they would have been in the absence of A's power to enjoy. (4) A's profit share is increased by so much of the amount of B's profit share as, it is reasonable to suppose, is attributable to— (a) A's deferred profit, or (b) A's power to enjoy, as determined on a just and reasonable basis. But any increase by virtue of paragraph (b) is not to exceed the amount of the excess mentioned in subsection (3)(a) after deducting from that amount any increase by virtue of paragraph (a). (5) If B is chargeable to income tax, in applying sections 850 to 850B in relation to B for the relevant period of account, such adjustments are to be made as are just and reasonable to take account of the increase in A's profit share under subsection (4). (This subsection does not apply for the purposes of subsection (7) or section 850D(7).) (6) A partner in a firm is an “individual partner” if the partner is an individual and “non-individual partner” is to be read accordingly; but “non-individual partner” does not include the firm itself where it is treated as a partner under section 863I (allocation of profit to AIFM firm). (7) B's profit share is to be determined by applying section 850 and, if relevant, section 850A in relation to B for the relevant period of account (whether or not B is chargeable to income tax) on the assumption that the calculation under section 849 in relation to B produces the profit for the firm mentioned in subsection (1)(a)(i). (8) “A's deferred profit”— (a) is any remuneration or other benefits or returns the provision of which to A has been deferred (whether pending the meeting of any conditions (including conditions which may never be met) or otherwise), and (b) includes A's share (as determined on a just and reasonable basis) of any remuneration or other benefits or returns the provision of which to A and one or more other persons, taken together, has been deferred (whether pending the meeting of any conditions (including conditions which may never be met) or otherwise). (9) “The relevant tax amount” is the total amount of tax which, apart from this section, would be chargeable in respect of A and B's income as partners in the firm. (10) “The appropriate notional profit” is the sum of the appropriate notional return on capital and the appropriate notional consideration for services. (11) “The appropriate notional return on capital” is— (a) the return which B would receive for the relevant period of account in respect of B's contribution to the firm were the return to be calculated on the basis mentioned in subsection (12), less (b) any return actually received for the relevant period of account in respect of B's contribution to the firm which is not included in B's profit share. (12) The return mentioned in subsection (11)(a) is to be calculated on the basis that it is a return which is— (a) by reference to the time value of an amount of money equal to B's contribution to the firm, and (b) at a rate which (in all the circumstances) is a commercial rate of interest. (13) For the purposes of subsections (11) and (12) B's contribution to the firm is amount A determined under section 108 of ITA 2007 (meaning of “contribution to the LLP”). (14) That section is to be applied— (a) reading references to the individual as references to B and references to the LLP as references to the firm, and (b) with the omission of— (i) subsections (5)(b) and (9), and (ii) in subsection (6) the words from “but” to the end. (15) “The appropriate notional consideration for services” is— (a) the amount which B would receive in consideration for any services provided to the firm by B during the relevant period of account were the consideration to be calculated on the basis mentioned in subsection (16), less (b) any amount actually received in consideration for any such services which is not included in B's profit share. (16) The consideration mentioned in subsection (15)(a) is to be calculated on the basis that B is not a partner in the firm and is acting at arm's length from the firm. (17) Any services, the provision of which involves any partner in the firm in addition to B, are to be ignored for the purposes of subsection (15). (18) A has the power to enjoy B's profit share if— (a) A is connected with B by virtue of a provision of section 993 of ITA 2007 (meaning of “connected” persons) other than subsection (4) of that section, (b) A is a party to arrangements the main purpose, or one of the main purposes, of which is to secure that an amount included in B's profit share— (i) is charged to corporation tax rather than income tax, or (ii) is otherwise subject to the provisions of the Corporation Tax Acts rather than the provisions of the Income Tax Acts, or (c) any of the enjoyment conditions (see subsection (20)) is met in relation to B's profit share or any part of B's profit share. (19) In subsection (18)(b) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable). (20) The enjoyment conditions are— (a) B's profit share, or the part, is in fact so dealt with by any person as to be calculated at some time to enure for the benefit of A, whether in the form of income or not; (b) the receipt or accrual of B's profit share, or the part, by or to B operates to increase the value to A of any assets held by, or for the benefit of, A; (c) A receives or is entitled to receive at any time any benefit provided or to be provided (directly or indirectly) out of B's profit share or the part; (d) A may become entitled to the beneficial enjoyment of B's profit share, or the part, if one or more powers are exercised or successively exercised by any person; (e) A is able in any manner to control (directly or indirectly) the application of B's profit share or the part. (21) In subsection (20) references to A include any person connected with A apart from B. (22) Subsection (23) applies if— (a) the increase under subsection (4), or any part of it, is allocated by A to the firm itself under section 863I (allocation of profit to AIFM firm), and (b) B makes a payment to the firm representing any income tax for which the firm is liable by virtue of section 863I in respect of the amount of the increase allocated to it. (23) For income tax purposes, the payment— (a) is not to be income of any partner in the firm, and (b) is not to be taken into account in calculating any profits or losses of B or otherwise deducted from any income of B. (850D) (1) Subsections (4) and (5) apply if— (a) at a time during a period of account (“the relevant period of account”) in respect of a firm, an individual (“A”) personally performs services for the firm, (b) if A had been a partner in the firm throughout the relevant period of account, the calculation under section 849 in relation to A for the relevant period of account would have produced a profit for the firm, (c) a non-individual partner (“B”) in the firm (see subsection (6)) has a share of that profit (“B's profit share”) which is a profit (see subsection (7)), (d) it is reasonable to suppose that A would have been a partner in the firm at a time during the relevant period of account or any earlier period of account but for the provision contained in section 850C (see also subsections (8) to (10)), and (e) condition X or Y is met. (2) Condition X is that it is reasonable to suppose that amounts representing A's deferred profit (see subsection (11)) are included in B's profit share. (3) Condition Y is that— (a) B's profit share exceeds the appropriate notional profit (see subsection (12)), (b) A has the power to enjoy B's profit share (“A's power to enjoy”) (see subsection (13)), and (c) it is reasonable to suppose that the whole or any part of B's profit share is attributable to A's power to enjoy. (4) A is to be treated on the following basis— (a) A is a partner in the firm throughout the relevant period of account (but not for the purposes of section 863I (allocation of profit to AIFM firm)), (b) A's share of the firm's profit for the relevant period of account is so much of the amount of B's profit share as, it is reasonable to suppose, is attributable to— (i) A's deferred profit, or (ii) A's power to enjoy, as determined on a just and reasonable basis, and (c) A's share of the firm's profit is chargeable to income tax under the applicable provisions of the Income Tax Acts for the tax year in which the relevant period of account ends. But A's share of the firm's profit by virtue of paragraph (b)(ii) is not to exceed the amount of the excess mentioned in subsection (3)(a) after deducting from that amount A's share of the firm's profit (if any) by virtue of paragraph (b)(i). (5) If B is chargeable to income tax, in applying sections 850 to 850B in relation to B for the relevant period of account, such adjustments are to be made as are just and reasonable to take account of A's share of the firm's profit under subsection (4). (This subsection does not apply for the purposes of subsection (7) or section 850C(7).) (6) “Non-individual partner” is to be read in accordance with section 850C(6). (7) B's profit share is to be determined by applying section 850 and, if relevant, section 850A in relation to B for the relevant period of account (whether or not B is chargeable to income tax) on the assumption that the calculation under section 849 in relation to B produces the profit for the firm mentioned in subsection (1)(b). (8) The requirement of subsection (1)(d) is to be assumed to be met if, at a time during the relevant period of account, A is a member of a partnership which is associated with the firm. (9) A partnership is “associated” with the firm if— (a) it is a member of the firm, or (b) it is a member of a partnership which is associated with the firm (whether by virtue of paragraph (a) or this paragraph). (10) In subsections (8) and (9) “partnership” includes a limited liability partnership whether or not section 863(1) applies in relation to it. (11) “A's deferred profit” is to be read in accordance with section 850C(8). (12) Section 850C(10) to (17) applies for the purpose of determining “the appropriate notional profit”; and A is to be treated as a partner in the firm for the purposes of section 850C(17). (13) Section 850C(18) to (21) applies for the purpose of determining if A has the power to enjoy B's profit share. (850E) (1) Subsection (2) applies in a case in which section 850C(4) or section 850D(4) applies if— (a) there is an agreement in place in relation to the excess part of B's profit share, (b) as a result of the agreement, B makes a payment to another person out of the excess part of B's profit share, and (c) the payment is not made under any arrangements the main purpose, or one of the main purposes, of which is the obtaining of a tax advantage for any person. (2) For income tax purposes, the payment— (a) is not to be income of the recipient, (b) is not to be taken into account in calculating any profits or losses of B or otherwise deducted from any income of B, and (c) is not to be regarded as a distribution. (3) In this section— - “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), - “B's profit share” has the same meaning as in section 850C or 850D (as the case may be), - “the excess part of B's profit share” means so much of the amount of B's profit share as is represented by the amount of, as the case may be— 1. the increase under section 850C(4), or 2. A's share of the firm's profit under section 850D(4), and - “tax advantage” has the meaning given by section 1139 of CTA 2010.

8

• (1) Chapter 3 of Part 4 of ITA 2007 (trade loss relief: restrictions for certain partners) is amended as follows.

• (2) In section 102 (overview of Chapter) after subsection (2) insert—

(2A) This Chapter also provides for no relief to be given for a loss made by an individual in a trade carried on by the individual as a partner in a firm in certain cases where some or all of the loss is allocated to the individual rather than a person who is not an individual (see section 116A).

• (3) At the end insert—

(116A) (1) Subsection (2) applies if— (a) in a tax year, an individual (“A”) makes a loss in a trade as a partner in a firm, and (b) A's loss arises, wholly or partly— (i) directly or indirectly in consequence of, or (ii) otherwise in connection with, relevant tax avoidance arrangements. (2) No relevant loss relief may be given to A for A's loss. (3) In subsection (1)(b) “relevant tax avoidance arrangements” means arrangements— (a) to which A is party, and (b) the main purpose, or one of the main purposes, of which is to secure that losses of a trade are allocated, or otherwise arise, in whole or in part to A, rather than a person who is not an individual, with a view to A obtaining relevant loss relief. (4) In subsection (3)(b) references to A include references to A and other individuals. (5) For the purposes of subsection (3)(b) it does not matter if the person who is not an individual is not a partner in the firm or is unknown or does not exist. (6) In this section— - “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and - “relevant loss relief” means— 1. sideways relief, 2. relief under section 83 (carry-forward trade loss relief), 3. relief under section 89 (terminal trade loss relief), or 4. capital gains relief. (7) This section applies to professions as it applies to trades.

9

• (1) Chapter 4 of Part 4 of ITA 2007 (losses from property businesses) is amended as follows.

• (2) In section 117 (overview of Chapter) in subsection (3) for “and 127B” substitute “ to 127C ”.

• (3) After section 127B insert—

(127C) (1) Subsection (2) applies if— (a) in a tax year, an individual (“A”) makes a loss in a UK property business or an overseas property business as a partner in a firm, and (b) A's loss arises, wholly or partly— (i) directly or indirectly in consequence of, or (ii) otherwise in connection with, relevant tax avoidance arrangements. (2) No relevant loss relief may be given to A for A's loss. (3) In subsection (1)(b) “relevant tax avoidance arrangements” means arrangements— (a) to which A is party, and (b) the main purpose, or one of the main purposes, of which is to secure that losses of a UK property business or an overseas property business are allocated, or otherwise arise, in whole or in part to A, rather than a person who is not an individual, with a view to A obtaining relevant loss relief. (4) In subsection (3)(b) references to A include references to A and other individuals. (5) For the purposes of subsection (3)(b) it does not matter if the person who is not an individual is not a partner in the firm or is unknown or does not exist. (6) In this section— - “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and - “relevant loss relief” means relief under section 118 (carry-forward property loss relief) or section 120 (property loss relief against general income).

10

• (1) Part 17 of CTA 2009 (partnerships) is amended as follows.

• (2) In section 1262 (allocation of firm's profits and losses between partners) in subsection (1) for “and 1264” substitute “ to 1264A ”.

• (3) After section 1264 insert—

(1264A) (1) Subsection (2) applies in a case in which— (a) section 850C(4) or 850D(4) of ITTOIA 2005 applies for a period of account (“the relevant period of account”), and (b) the partner who is “B” for the purposes of section 850C or 850D of that Act (as the case may be) is a company. (2) In applying sections 1262 to 1264 in relation to the company— (a) for the accounting period of the firm which coincides with the relevant period of account, or (b) if no accounting period of the firm coincides with the relevant period of account, for accounting periods of the firm in which the relevant period of account falls, such adjustments are to be made as are just and reasonable to take account of the increase under section 850C(4) of ITTOIA 2005 or A's share of the firm's profit under section 850D(4) of that Act. (3) Sections 850C(23) and 850E(2) of ITTOIA 2005 apply for corporation tax purposes as they apply for income tax purposes.

Commencement

11

• (1) Subject to sub-paragraph (2), the amendments made by paragraphs 7 and 10 are treated as having come into force on 5 December 2013 and have effect in accordance with paragraphs 12 and 13.

• (2) Section 850C(8)(b), (18)(b) and (19) of ITTOIA 2005 is treated as having come into force on 6 April 2014.

12

• (1) Section 850C of ITTOIA 2005 has effect for periods of account beginning on or after 6 April 2014 (and section 850E of ITTOIA 2005 and section 1264A of CTA 2009 have effect accordingly).

• (2) Sub-paragraphs (3) and (4) apply in relation to a firm where a period of account (“the straddling period”) begins before 6 April 2014 but ends on or after that date.

• (3) Assume that the part of the straddling period falling on or after 6 April 2014 is a separate period of account.

• (4) If section 850C(4) of ITTOIA 2005 would apply in relation to one or more partners in the firm for the assumed separate period of account, Part 9 of that Act has effect as if that part of the straddling period were a separate period of account.

13

• (1) Section 850D of ITTOIA 2005 has effect for periods of account beginning on or after 6 April 2014 (and section 850E of ITTOIA 2005 and section 1264A of CTA 2009 have effect accordingly).

• (2) Sub-paragraphs (3) and (4) apply in relation to a firm where a period of account (“the straddling period”) begins before 6 April 2014 but ends on or after that date.

• (3) Assume that the part of the straddling period falling on or after 6 April 2014 is a separate period of account.

• (4) If section 850D(4) of ITTOIA 2005 would apply in relation to one or more individuals for the assumed separate period of account, Part 9 of that Act has effect as if that part of the straddling period were a separate period of account.

14

• (1) The amendments made by paragraphs 8 and 9 have effect in relation to losses made in the tax year 2014-15 and subsequent tax years.

• (2) Sub-paragraphs (3) and (4) apply for the purposes of section 116A or 127C of ITA 2007 if a loss made by an individual as a partner in a firm arises in a period of account (“the straddling period”) which begins before 6 April 2014 but ends on or after that date.

• (3) The loss is to be apportioned between the part of the straddling period falling before 6 April 2014 and the part falling on or after that date—

• (a) on a time basis according to the respective lengths of those parts of the straddling period, or

• (b) if that method produces a result that is unjust or unreasonable, on a just and reasonable basis.

• (4) Section 116A or 127C of ITA 2007 does not apply in relation to the loss so far as it is apportioned to the part of the straddling period falling before 6 April 2014.

PART 3 — Alternative investment fund managers: deferred remuneration etc

Main provision

15

At the end of Part 9 of ITTOIA 2005 (partnerships) insert—