OT67050 - Transferable tax history - Supplementary Charge - Example: supplementary charge rate higher than 20%
Decommissioning expenses 20,000,000
Tracked Profits 15,000,000
TTH activated 5,000,000
Unrelieved decom loss 10,000,000 (including finance costs of 2,000,000)
Transferred TTH
RFCT profits 5,000,000 @ 30%
Taxable ARFP 4,000,000 @ 32%
- £5,000,000 of the loss of £10,000,000 is set off against the activated RFCT TTH of £5,000,000
- 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 52 because the SC rate for the period was greater than 20%)
- the adjusted finance cost amount for the loss period (paragraph 55)
- The reduced ARFP under paragraph 52 is the activated ARFP amount, plus the ARFP uplift amount, less the RFCT loss set against activated TTH.
- Here the activated ARFP amount is £4,000,000 (see OTXXXX)
- The ARFP uplift amount is equal to ((SC-20%)/SC) x A where
- SC is the percentage rate that SC was charged for the period
- A is the loss applied for the period
- ((32%-20%)/32% x 5,000,000 = 5,000,000 x 37.5% = £1,875,000
- The reduced AFRP amount is therefore £4,000,000 + £1,875,000 - £5,000,000 = £875,000
- 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 £10m)
- 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
- (5,000,000/10,000,000) x 2,000,000 = 1,000,000
- The recalculated transferred ARFP is therefore £875,000 + £1,000,000 = £1,875,000 against an original transferred ARFP of £4,000,000 resulting in a repayment of £680,000 which is 32% of £2,125,000 the rate at which the seller paid supplementary charge on those profits.