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HMRC internal manual

Oil Taxation Manual

Corporation tax ring fence: hire of relevant assets - effect of being within CTA2010\S285A

A ring fence company which is within CTA2010\S285A will be subject to the hire cap. The amount of the hire cap is computed in the same way in which it would have been had the cap applied to the contractor (OT50030).

Where there is more than one lease in respect of an asset, the total amount of the hire cap cannot exceed the amount that would have applied to a single lease payment. The amount each of the payers is entitled to claim is to be determined on a just and reasonable basis (CTA2010\S285A(4)).

The amount paid for the lease in excess of the hire cap cannot be claimed as a ring fence deduction either in the production ring fence (within part 8 CTA2010) or in the contractors ring fence (within Part 8A CTA2010). Instead the excess amount can be deducted against non ring fence activity either in the company making the payment or by surrender under the group relief rules. (CTA2010\S285A(6)).

Any amount of the excess not used in the accounting period will form a non ring fence loss and can be carried forwards against non ring fence income in a subsequent accounting period.

The information required in order to calculate the amount of the cap should be readily available from the contractor with whom the arrangements have been made. If the ring fence company is unable to ascertain the original expenditure on the asset or any extant enhancement expenditure, it should make an estimate to the best of its ability and advise HMRC of the detailed assumptions made in arriving at that estimate. The company should also advise HMRC of the reasons why it has been unable to obtain the original information. LB Oil and Gas can confirm the acceptability of any estimate in advance of making a return if required.