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HMRC internal manual

Oil Taxation Manual

From
HM Revenue & Customs
Updated
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Corporation Tax Ring Fence: The Supplementary Charge - Example 1 - The carry forward of a CT Ring Fence loss and a shadow computation tracking financing costs

  Company Results Yr1 Yr2 Yr3 Yr4 Yr5
             
  CTRF profit/(loss) for period (50) (10) 30 10 40
             
  Financing Costs for period 10 20 10 (20) 10
  CT ring fence profits
   
  CTRF profit from period     30 10 40
             
Less Losses used in period     (30) (10) (20)
  Net CT ring fence profits         20
  CT ring fence losses
   
  CTRF loss bfwd   (50) (60) (30) (20)
             
add CTRF loss of period (50) (10)      
Add loss carried back from following AP          
Less CTRF loss used in period     30 10 20
Less Group relief surrendered          
Less Loss carried back to prior period          
  CTRF loss cfwd (50) (60) (30) (20)  
  Calculation of adjusted ring fence profit
   
  CTRF profit/(loss) for period (50) (10) 30 10 40
             
exclude Financing Costs of the year 10 20 10 (20) 10
Add Amount bfwd from preceding period   (40) (30)   (10)
Less Amount carried back from following period          
Less Amount carried back to preceding period          
  Adjusted ring fence profit (40) (30) 10 (10) 40
  Summary of tax position
   
  Ring fence CT profit         20
             
  Corporation Tax due at 30% 0.00 0.00 0.00 0.00 6.00
  Adjusted ring fence profit     10   40
  Supplementary charge due at 20% 0.00 0.00 2.00 0.00 8.00

Year 1

The company has a corporation tax ring fence (CTRF) loss in the period of 50 and financing costs of 10. There is no adjusted ring fence (ARF) profit in the period.

The CTRF loss of 50 is carried forward to year 2. There is no liability to Corporation Tax (CT).

There is a shadow calculation to keep track of the financing costs that have to be excluded in calculating the ARF profit and SC and the amount of 40 is carried forward.

No supplementary charge (SC) is due.

Year 2

The company has a CTRF loss in the period of 10 and financing costs of 20. The ARF profit in the period is 10.

The CTRF losses are tracked and the losses of 60 are carried forward to year 3 (50 + 10). There is no liability to CT.

The shadow calculation has an amount of 40 brought forward and this is set against the ARF profit reducing it to nil. 10 of the amount brought forward has been used and the balance of 30 is carried forward (40 -10). There is no SC due.

Year 3

The company has a CTRF profit in the period of 30 and financing costs of 10. The ARF profit in the period is 40.

The CTRF loss brought forward into the period is 60 and 30 of this can be set against the CTRF profit reducing it to nil. The CTRF loss carried forward is the balance of 30 (60 -30). There is no liability to CT.

The shadow calculation has an amount of 30 brought forward and this is all set against the ARF profit reducing it to 10 (40 - 30). There is no carry forward from the period. A SC of 2 is due on the net ARF profit of 10.

Year 4

The company has a CTRF profit in the period of 10 and the financing costs are in fact income of 20. There is no ARF profit in the period.

The CTRF loss brought forward into the period is 30 and 10 of this can be set against the CTRF profit reducing it to nil. The CTRF loss carried forward is the balance of 20 (30 - 10). There is no liability to CT.

The shadow calculation has no amount brought forward and an amount of 10 from the period is carried forward. There is no SC due.

Year 5

The company has a CTRF profit in the period of 40 and financing costs of 10. The ARF profit in the period is 50.

The CTRF loss brought forward into the period is 20 and all of this can be set against the CTRF profit reducing it to 20 (40 - 20). There is no CTRF loss carried forward. There is a liability to CT of 6.

The shadow calculation has an amount brought forward of 10 and this is all set against the ARF profit reducing it to 40. There is no amount carried forward. A SC of 8 is due on the net ARF profit of 40.