Our Tax Newsletter of 21 March encouraged potential sellers of interests to ensure their Deeds were amended if they were contemplating taking advantage of the transferable tax history (TTH) rules.
We now understand that the Treasury will contact all Deed holders to implement the changes to the Deed to make them compatible with the TTH rules. We understand this will happen within weeks and will involve the Treasury sending the revised wording to the Deed holder. Furthermore, we understand that the amendment will take effect on the agreement of the Deed holder. In other words, the process should be very simple and quick.
However, we have not seen the wording of the amendment and cannot comment further on the detail of the Treasury programme. Deed holders who are content to await the Treasury communication should satisfy themselves that the Treasury has the correct contact details and then await the communication. Deed holders who wish to ensure an earlier amendment should consider contacting the Treasury directly.
As mentioned in our earlier Tax Newsletter there should be no downside from making the changes to the Deed, with the proviso that we have not seen the amended wording.
The transferable tax history rules are now law.
However, any seller of a licence interest who has a Decommissioning Relief Deed in place cannot make an election to transfer tax history unless the Deed contains a provision to ensure the seller cannot make a Deed claim that effectively relies upon tax history that has been transferred.
Specifically, the Deed must provide that the total transferred amount of tax history is removed from the calculation of the “reference amount”; which is the amount effectively guaranteed by the Deed.
This means that current Deed wording is incompatible with transferring tax history and must be changed. Given that elections to transfer tax history must be made within 90 days of the sale and we do not know how long Treasury officials will take to make amendments, groups should consider initiating the changes sooner rather than waiting for a potential sale.
There should be no downside from making the changes to the Deed, although we have not yet seen the final wording to be incorporated into the Deed. The effect of the Deed change should simply remove the transferred tax history from the guaranteed relief offered by the Treasury, as would be expected since the transferee will be able to use that tax history.
Supreme Court refuse taxpayer permission to appeal in the Leekes loss streaming case.
It looks like the end of the line for the loss streaming appeal by Leekes as the Supreme Court refused the taxpayer permission to appeal because the application did not raise an arguable point of law.
The taxpayer had argued that where there had been a succession in the case of the transfer of the whole of the trade, the streaming rules set out in s343(8) did not apply and there was no other requirement to stream. Essentially losses transferred were available for offset against the whole of the profits of the merged trade.
The taxpayer was successful at the FTT but has lost at both the UTT and the Court of Appeal and now the Supreme Court refused the taxpayer permission to take the issue further. Full details of the facts and previous decisions were set out in our news brief of 13 June 2018.
Where this leaves us is that streaming will apply to pre 1 April 2017 losses on a transfer of all or part of the trade. However, for losses generated post 1 April 2017 the new loss offset rules mean that this is no longer an issue for transfers of non-ring trades.
For ring fence trades the position is not so clear cut. Whilst we believe there are good arguments that streaming may not, in practice, apply, to post 1 April 2017 losses the position is far from straight forward and companies contemplating any restructuring including ring fence losses will need to look very carefully at the position.
Please contact Ian Hack, Paul Rogerson, or your normal CWE contact if you would like to discuss
Changes in Activation rules: Tariff receipts
Secondary legislation has now been brought into effect to allow tariff receipts to be included within relevant income for the purposes of determining the level of investment allowance or cluster allowance that can be activated.
Tariff income activates investment allowance or cluster allowance for the field or cluster to which the tariffs are ‘attributable’. Note the rules for attribution do not follow the PRT rule concept of a chargeable field so if a qualifying asset which generates tariff income is used by the owner of a number of fields, the income should be apportioned on a just and reasonable basis between those fields.
The rules have retrospective effect and apply to accounting periods beginning on or after 16 September 2016. Companies with a December year end who have recently submitted their 2017 returns and have a supplementary charge liability or likely to have one in the foreseeable future should review the position to determine whether this change could generate a benefit.