Yearly Archives: 2019

28 Nov 2019

Compliance Briefing 2019/20

The December year-end returns are due to be filed soon and so we thought it would be helpful to send a reminder of some of the new challenges that face companies when preparing and filing their corporation tax returns. 

The complexities of tax compliance have multiplied in recent years and CW Energy remains committed to ensuring that compliance is achieved efficiently and timeously and that we optimise the tax attributes of each client.

The purpose of this briefing is to share our view of the impact of key recent changes in legislation and practice.


The increased complexity arising from the introduction of new rules on losses, corporate interest deductions and anti-hybrids mean that the routine preparation of CT returns requires greater consideration.

Furthermore, we have recently experienced a substantial increase in HMRC enquiries into submitted returns. These have in some cases tested the link from the accounts figures and tax computations derived therefrom to the underlying obligations to meet costs. 

As a result, there is more information required to ensure that returns are complete and accurate and to optimise reliefs and losses and additional questions may need to be asked to validate entries in the computations. 

The impact of recently-introduced legislation 

We want to highlight the potential impact of the following;

New loss rules; amounts carried forward (effective from April 1 2017) 

Whilst the position for Ring Fence losses remains largely unchanged, for losses and deficits being carried forward outside the Ring Fence, the broad effect of the new rules is that carried forward amounts;

  • can be set-off against more types of income (than previously),
  • can be group relieved to another company, 
  • cannot cover more than 50% of the profits of the period (after other reliefs) subject to a £5m group allowance de minimis (group aggregate), and 
  • are utilised at the company’s discretion- a company will be able to choose whether to use brought forward amounts

The £5m ‘group allowance’ (which permits unrestricted use of £5m of brought forward losses per group) is effective only through a nominated company submitting an allocation statement to HMRC showing the amounts of allowance allocated to each company. The nomination of a company must be signed by each company that is a member of the group and which is within the charge to Corporation Tax at the time and will apply for subsequent periods.

 In practice, this nomination and the submission of the nomination statement must be made prior to (or at the same time as) submitting the first CT returns containing an allocation of allowance. This means an extra submission to HMRC.

However, a later allocation of the allowance or an amendment thereto can still be made by the nominated company up to the anniversary of the filing date for the relevant period.

The interaction of brought forward amounts, in-year losses and carried back amounts, added to the group options for the in-year and carried forward amounts potentially make optimisation more difficult to achieve. Additionally, options will need to be reviewed right up to the latest date for amending returns and elections. 

Finally, the particular impact of the restriction on the use of losses brought forwards means that fluctuating exchange rates can create gains outside the ring-fence trade which cannot be fully covered, and we continue to advise clients to reduce intra-group balances and mismatched currency lending in order to simplify their tax affairs. 

For the coming year-end, the new rules give a number of options and may in some cases represent potential planning opportunities. 

Companies with a December year-end want to revisit their 2017 filings before the year-end to ensure that the position has been optimised.

Interest restriction rules (effective from April 1 2017)

The new Corporate Interest Restriction (CIR) rules are also effective from 1 April 2017. 

Once again, whilst the position for Ring Fence interest deductions remains essentially the same as before, for non-Ring Fence interest deductions the new rules mean that there are both administrative issues and a requirement to test the overall interest deductions being claimed, and potentially restrict them.

There is a per period de minimis such that no restriction applies for the group provided the net interest expense is less than £2m (this is reduced pro-rata for a short period). 


The introduction of a restriction based on combined group company data means that where interest is restricted there is an administrative requirement for the group to appoint a company to make an ‘interest return’ to take advantage of the options for choosing the companies subject to disallowance and the amounts for each  

It may also be advantageous to make an interest return even if no interest restriction applies to the period unless the group is confident that its net interest expense will not exceed the £2m de minimis in the foreseeable future. This is because such a return allows the group to carry forward excess interest allowances from the period which may have value in later periods and to make certain elections.  

In the absence of an interest return, the disallowance is fixed by statute to be proportionate to the net tax interest debits recorded by the respective companies. 

As a result, all groups need to consider appointing a ‘reporting company’ to make the ‘interest return’ for the relevant group companies. Generally, the reporting company needs to be appointed and HMRC notified within 12 months (as extended by new rules) of the period end. 

The notice must specify the first period of account to which the appointment relates along with a list of the eligible authorising companies and a statement that those companies constitute at least 50 per cent of the eligible companies. The reporting company must inform each UK group company and the ultimate parent of its appointment. 

Appointing a ‘reporting company’ means that the company will have to make a return for each period.

HMRC may appoint a company for example where they think a restriction is possible and want to elicit a return.

Interest Returns and restrictions 

Returns are required to 

  • Carry forward interest allowances
  • Make certain elections under the CIR rules
  • Allocate any interest disallowance to specific companies
  • Allocate interest reactivations.

Where applicable, an abbreviated return gives a simple filing option that keeps the flexibility to extend into a full return containing all the elements above if that is beneficial. This option may be chosen in the case where there is no restriction in the period but where there may be the possibility of a restriction in a future period. 

Once a reporting company is appointed it will have an obligation to file a return within twelve months of the period end, or if later, three months from its appointment. This latter provision will be used where HMRC appoints a company.

In cases where a group cannot rely upon the £2m net ‘safe harbour’ to cover all the interest deductions, the calculations may be complex, and choices may be required for which basis of calculation is to be used. 


The compliance impact of making the calculations and elections in respect of non-Ring Fence interest deductions is potentially significant. Furthermore, where there are restrictions the interaction with loss reliefs will need to be optimised and the potential for the position to be reviewed, amended and recalculated over subsequent periods also adds to the compliance impact. 

Anti-hybrid rules (January 2017 effective) 

The third measure we wanted to highlight in this note is the anti-hybrid legislation. For transactions from 1 January 2017 companies that are hybrids, make payments to hybrids, receive income from hybrids or transact with or through branches will need to evaluate whether the anti-hybrid rules apply. These rules limit CT deductions or impute income. They can restrict losses but may also create or increase profits.

The rules also apply to certain ‘hybrid’ financial instruments, dual resident companies, and even require consideration as to whether as part of an organised chain of transactions the relevant UK company benefits from a tax mismatch that occurs beyond its immediate transactions. 

 Whilst the rules are largely limited in their application to intra-group transactions in which a tax mismatch occurs, they require information that has not hitherto been required in making a CT return. 

As a general starting point, this means that companies need to identify potential for tax mismatches. Companies need to understand whether group transactions are conducted with hybrid entities (not uncommon in the case of US resident groups) or branches, and also need to understand what the taxation consequences are for the counterparty. Once a mismatch is identified, the detail of the rules needs to be addressed to establish if they adjust the deductions or income otherwise chargeable in the UK.    

Other Reporting Requirements and HMRC compliance activity

The recent introduction of requirements for country-by-country reporting, the publication of tax strategies, the Extractive Industries Transparency Initiative, the Extractive Industries Reporting Payments to Governments Regs 2014, and more established Senior Accounting Officer notifications mean that clients falling within these rules have multiple ongoing period-by-period obligations.

As a more recent development, we have seen an increase in HMRC enquiries targeting particular entries in the accounts and computations and asking for the evidence to support the figures.

Typically we find that providing the evidence and reconciliation can be most difficult in respect of;

  • Asset expenditure qualifying for capital allowances and investment allowance
  • Exchange differences – to differentiate by source  

Since HMRC now routinely consider penalties for any error in a return, as a precaution we are now increasing our checks on such entries to verify their nature and treatment and also the extent to which they can be easily supported from accounting data.

The approach CW Energy takes to compliance is that it wants to help clients optimise their tax positions, meet their obligations and avoid the pitfalls from the new rules, with the minimum extra disruption. The new rules require more information and greater consideration of the options than before. Many of the deadlines in the new rules are aligned with the normal end-of-year process, meaning that a company should start the process earlier. We also aim to maintain contact with clients to identify early on the information that is going to be needed and when it will be available, and this briefing is part of that. 

26 Nov 2019

Conservative Party Manifesto: A promise of a transformational sector deal

The publication of the Conservative Party Manifesto document over the weekend included a proposal for an oil and gas sector deal.

In the section of the document relating to Scotland, the following was announced:

“Oil and gas sector deal: The oil and gas industry employs almost 300,000 people, of whom four in 10 work in Scotland. We believe that the North Sea oil and gas industry has a long future ahead and know the sector has a key role to play as we move to a Net Zero economy. We will support this transition in the next Parliament with a transformational sector deal.”

No further details of what such a deal may contain were included in the Manifesto document and we can see no public announcements providing any detail either.


The 2017 manifesto included a similar statement of support for the industry. Some readers may recall that the Scottish Affairs Committee published a report entitled “The future of the oil and gas industry” on 4 February 2019. That report voiced support for a new oil and gas sector deal focusing on the existing policy of maximising economic recovery.

At that time the Government replied by stating what had already been done to support the industry. This Manifesto proposal may be signalling an intention to revisit this and open up further dialogue on how the future of the oil and gas sector in the UK can be supported. These positive comments are in stark contrast to the Labour threat of a windfall tax.

22 Nov 2019

Labour’s Oil Tax Windfall Proposal

The publication of the Labour Party Manifesto document included a proposal for a windfall tax for oil companies.  

The Manifesto itself included the following:

“We will introduce a windfall tax on oil companies so that the companies that knowingly damaged our climate will help cover the costs. We will provide a strategy to safeguard the people, jobs and skills that depend on the offshore oil and gas industry.”

No details of the measure were included in the manifesto. However, Labour Party representatives have indicated that the key features are as summarised below:

  • The windfall tax is a one-off tax payable over a number of years.
  • It is targeted at oil and gas firms it believes have paid less than their fair share of taxation compared to peers in other countries such as Norway and the Netherlands who are extracting from the North Sea region. 
  • The windfall tax will be used to create a “just transition fund” to help shift the UK towards a green economy “without causing mass job losses”.
  • The tax would be calculated according to “an assessment of each firm’s past contribution to the climate crisis”.
  • The tax has been calculated by Labour to raise £11bn.


With the OBR forecasting £1.1bn of tax revenues from the UK upstream sector in the current year, the size of this potential impost is put in perspective although we understand that the tax could be collected over a number of years.  Announcements of this kind from one of the UK’s leading political parties may have a very unwelcome impact on investor sentiment. 

08 Nov 2019

Oil and Gas Accounting – Deferred Tax

IAS 12 and the initial recognition of decommissioning assets and liabilities 

An exposure draft was published in the summer proposing an amendment to the application of the Initial recognition exemption (IRE) to transactions where a deferred tax asset and liability of the same amount are established on initial recognition. 

In the past we have seen a wide variation in the accounting in this area but if the proposals are implemented companies may well have to revisit this area. 

Representations are required by 14 November 2019

This potential change has been brought into focus as a result of the change to accounting for leases in IAS 16, but it is clear in the various papers published by the IFRS Foundation (and noted in the exposure draft itself) that this potential change is also applicable to the initial recognition of decommissioning liabilities (which would require a corresponding asset). 

The IRE has no application to a business combination (BC).

The IFRS Foundation have concluded that the IRE should not be applied in a case where a deferred tax asset and liability of the same amount are initially recognised on a particular transaction.   

We have seen a number of broad approaches for the treatment under IAS 12 for temporary differences on non BC decommissioning liabilities and assets but the effect of the change will be to standardize the approach going forward and require companies who have not been compliant with the new approach to amend their accounts with retrospective effect. 

The first approach we have seen in the past for accounting in this area is to simply apply the IRE to both the DT asset and liability. No DT is recognized on initial recognition or in the future. This approach will be prohibited.  

The second approach is to treat that the asset and liability as “integrally linked” such that no net temporary difference arises on initial set up, the IRE can have no application.  This essentially is the approach which we understand the new standard will adopt. 

The third approach is also an integrally linked approach where the temporary difference on the decommissioning asset and liability are “netted” in the calculation of deferred tax. Initially no amount is set up but as the asset and liability diverge a DTA is generally set up on a net number. In particular in considering whether the “asset” is recoverable some companies have taken the view that one only needs to consider this net position.  This in effect can mean that the DTL can be understated. This netting approach is not new but it increased its popularity for oil companies when the SCT rate was increased to 62% and the recoverability of tax on decommissioning was restricted to 50%. Companies were faced with the possibility of setting up an excess of 12% on the liability compared to the asset.

Although the ED addresses the narrow question of the IRE such that we are not expecting any new wording in the standard to specifically outlaw this netting approach as such, the discussion papers issued as part of the IRE review make it clear that this netting approach is inconsistent with IAS 12 and should not be adopted.  

Comparatives will have to be restated as a result of the retrospective application of this new rule (following IAS 8 principles).

A voluntary transitional relief will be available. This will allow one to apply the approach with reference to an assessment of the recoverability of the DTA at the time of the first period for which comparatives are to be restated as a result of the charge, rather than the recoverability position at inception.

A number of representations have been made to date and these have been broadly supportive of the change. This suggests that it is likely that the change will be implemented.

We do not know when this change is to be implemented but it seems unlikely changes will be made in time to be taken into account in the 2019 accounts process.  We have however already seen auditors looking at this area more carefully as a result of this development.

We would recommend that companies review their current approach to determine whether the implementation of the changes in the ED could have a material impact on their position.

If a company would like to discuss this change please contact Paul Rogerson, Andrew Lister or their normal CWE contact.

29 Oct 2019

Another new partner at CW Energy

We are pleased to announce that Andrew Lister has joined the practice as a new partner. Many of you will already know Andrew, who headed up one of the Big 4 energy tax practices for many years.

We are delighted to have attracted Andrew to join us and look forward to him providing support to the existing team and further developing the practice over many future years.

Andrew will be based at our Queen Street, London office. He can be contacted on 0207 936 8300 or by email at

17 Sep 2019

New Partner at CW Energy

We are very pleased to announce that Stephen Kitching, an indirect tax specialist with many years’ experience in the energy sector, has joined our team as a new tax partner. Steve will be based in our new Aberdeen office at 1 Marischal Square, Broad Street Aberdeen AB10 1BL, but will also be spending time in London.

This is an exciting development for CW Energy which will enable us to offer a broader range of services in the indirect tax sphere. Steve can be contacted on or mobile no. 07480 564934

04 Jul 2019

Transferable Tax History – Preparation  

For a valid TTH election to be made, the seller of the interest cannot be the holder of a Decommissioning Relief Deed with the original wording, since such Deed would expose the Exchequer to a potential double claim to relief.

In our March 27 news item, we advised Decommissioning Relief Deed holders of the Treasury’s plan to contact Deed holders to assist in implementing the changes to the Deed which are required for a valid TTH election. However, we understand this has not been implemented. Instead, the Treasury is relying on Deed holders to take the initiative to implement the changes.

The changes required are found in the ‘alternative Schedule’ which can be downloaded from

There is no downside from the amended wording.

To amend the Deed to incorporate the changes contained in this alternative schedule the company must make an election by giving notice to the Treasury (as the Government Counterparty). 

The election should give notice that the company elects to adopt the enclosed Alternative Schedule for the purposes of the Decommissioning Relief Deed entered into between the Lords Commissioners of Her Majesty’s Treasury (the “Government Counterparty”) and [COMPANY] (the “Company”) dated [DATE].

This election must be made in accordance with Clause 12 (Notices) of the Deed which requires the election to be signed and sent to the address used in the Deed. In the latest online version of the Deed this is given as Director of Business and International Tax, HM Treasury, 1 Horse Guards Road, London SW1A 2HQ , and copied to: Deputy Director Oil and Gas, HMRC, LBS Oil & Gas, 5th Floor, SW Bush House, Strand, London WC2B 4RD, although Deed holders should check the addresses used in their particular Deed.

Upon receipt by Treasury of such notice, the Deed will incorporate the alternative schedule, and the Deed holder will be in a position to be a party to a valid TTH election (as seller). 

We recommend verifying that the Treasury has received and accepted the election – the email is

27 Mar 2019

Transferable Tax History – Preparation 

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.

21 Mar 2019

Transferable Tax History  – Preparation  

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.

19 Mar 2019

Appeal refused in Leekes loss streaming case

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