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HMRC internal manual

Oil Taxation Manual

Oil contractors ring fence: introduction

The Oil contractors ring fence was introduced in Finance Act 2014 (Section 73 and Schedule 16). In this manual the ring fence is referred to as the contractors ring fence to distinguish this from the production ring fence within Part 8 of CTA 2010 (see OT21000).

The legislation at Part 8ZA of CTA2010 operates by splitting the amount allowable for the payment under a lease; typically a bareboat lease OT43130; into two parts. The part up to a prescribed cap is allowed as a deduction against the profit made from activities in the UKCS utilising the asset. The resultant profits are then subject to a ring fence preventing a reduction in profits from any relief unrelated to the activity being carried on. The excess expenditure above the cap can be set against any other activity in the UK or UKCS which is not subject to the contractors ring fence or production ring fence. This includes the option of surrendering the excess as group relief.

The contractors ring fence is different to the production ring fence. The contractors ring fence is not subject to the higher rates of corporation tax, the supplementary charge or the special rules for the payment of ring fence corporation tax and supplementary charge which came into force on 13 April 2005 OT21300. It is not necessary to make entries in box 161 or 169 on the CT600 return or to complete a CT600I in respect of the contractors ring fence.

HMRC offer a non-statutory clearance service for all customers and their advisers who need clarification on guidance or new legislation. Where a customer has fully considered the relevant guidance and has not been able to find the information required or remain uncertain about HMRC’s interpretation of Part 8ZA to their circumstances, they may make a request under the requirements set out on the HMRC Website -

Seeking clearance or approval for a transaction: Other Non-Statutory Clearance Guidance.