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HMRC internal manual

Oil Taxation Manual

Oil contractors ring fence: transitional provisions at commencement

Commencement

The legislation takes effect for all activities carried out on or after 1st April 2014. Where an accounting period (the split accounting period) spans the commencement date, an accounting period ends at 31 March 2014 and a new accounting period commences on 1st April 2014. The new accounting period runs up to the date to which that the split accounting period would have run, but for the new provision (FA2014\Sch16\Para8).

Group Payment arrangements

The split accounting period will be recognised for the purposes of the Group Payment arrangements at Chapter 4 of Part 22 of CTA2010.

Losses at commencement

Where a company has losses as at 31st March 2014, it is necessary to divide those into parts;

  • Those that would have arisen inside the contractors ring fence had new Part 8ZA applied (including both the hire cap and the contractors ring fence rules), and
  • Those that fall outside the new ring fence (including the excess above the hire cap).

Only those losses that would have arisen had new part 8ZA applied can be carried forward and set against taxable profit inside the contractor ring fence. All remaining losses are carried forward to be utilised outside the contractors ring fence under normal loss rules (the separation of the contractor activities does not of itself cause the underlying trade to have ceased). Other than the rules required to form separate streams, the losses (contractor or those arising outside the contractor ring fence) will be subject to the normal rules relating to trade cessation and succession.

Companies should apportion their losses at commencement in a just and reasonable way; it would be helpful if they would then disclose in their tax returns the detailed assumptions made in arriving at their estimates and the reasons why specific information was unobtainable.