OT67040 - Transferable tax history - Supplementary Charge - Example of carry back involving two years

Decommissioning expenses 20,000,000

Tracked Profits 16,000,000

TTH activated 4,000,000

Unrelieved decom loss 5,000,000 (including finance costs of 2,000,000)

Transferred TTH

31/12/16

RFCT profits 2,000,000 @ 30%

Taxable ARFP 1,000,000 @ 10%

31/12/15

RFCT profits 5,000,000 @ 30%

Taxable ARFP 4,000,000 @ 20%

APE 31/12/16

- The loss of £2,000,000 is set off against the activated RFCT TTH of £2,000,000

- As a result paragraph 26 requires a recalculation of the transferred adjusted ring fence profits amount in line with paragraph 50

- The SC repayment is based on the transferred ARFP amount which is the aggregate of:

- the reduced ARFP amount (paragraph 51)

- the adjusted finance cost amount for the loss period (paragraph 55)

- The reduced ARFP is the activated ARFP amount (see OT67030) less the loss set against the activated TTH for RFCT purposes, which here is £1,000,000 less £2,000,000 which gives reduced ARFP of (£1,000,000)

- The adjusted finance cost amount is equal to (A/L) x FC where

A is the amount of loss applied for the period (here £5m)

L is the total amount of the decommissioning loss (here £5m)

FC is the lower of the amount of the finance costs included in the loss (here £2m) and the amount of the loss for the period (here £5m) so in this example the FC amount is £2,000,000

(2,000,000/5,000,000) x 2,000,000 = 800,000

The recalculated transferred ARFP is therefore (£1,000,000) + £800,000 = (£200,000) but para 50(3) requires this to be treated as £Nil as the result is negative. With an original transferred ARFP of £1,000,000 this results in a repayment of £100,000 which is 10% of £1,000,000, the rate at which the seller paid supplementary charge on those profits.

APE 31/12/2015

- £2,000,000 of the remaining loss of £3,000,000 is set off against the remaining activated RFCT TTH of £2,000,000 (which is 2/5ths of the transferred profits)

- As a result paragraph 26 requires a recalculation of the transferred adjusted ring fence profits amount in line with paragraph 50

- The SC repayment is based on the transferred ARFP amount which is the aggregate of:

- the reduced ARFP amount (paragraph 51)

- the adjusted finance cost amount for the loss period (paragraph 55)

- The reduced ARFP is the activated ARFP amount less the loss used.

- The activated ARFP amount here is based on the calculation (A/T) x ARFP where

A is the amount of loss applied for the period (here £2m)

T is the unused transferred profits amount (here £5m)

ARFP is the amount of transferred ARFP (here £4m)

(2,000,000/5,000,000) x 4,000,000 = 1,600,000

- The reduced ARFP figure is therefore £1,600,000 less £2,000,000 which gives reduced ARFP of (£400,000)

- The adjusted finance cost amount is equal to (A/L) x FC where

A is the amount of loss applied for the period (here £2m)

L is the total amount of the decommissioning loss (here £5m)

FC is the lower of the amount of the finance costs included in the loss (here £2m) and the amount of the loss for the period (here £5m) so in this example the FC amount is £2,000,000

(2,000,000/5,000,000) x 2,000,000 = 800,000

- The recalculated transferred ARFP is therefore (£400,000) + £800,000 = £400,000). With an original transferred and activated ARFP of £1,600,000 this results in a repayment of £240,000 which is 20% of £1,200,000, the rate at which the seller paid supplementary charge on those profits.