The Inland Revenue have announced the introduction of new rules which will apply to the tax liability of companies with ring fence profits and gains in respect of the accounting period ending after 30 June 2005. Although the much feared windfall tax did not materialise these new rules will lead to a cash flow disadvantage for the industry.
Companies with profits and gains derived from UK oil or gas production which pay all their corporation tax and 10 per cent. supplementary charge under the quarterly payment regime for "large" companies will need to pay tax on their ring fenced profits in three instalments. The corporation tax due on their non-ring fenced profits will continue to be paid by four instalments.
Going forward, such companies will, therefore, need to separately estimate the corporation tax and supplementary charge due on their ring fence profits from that due on their non-ring fenced profits and gains.
There are transitional rules for the first affected accounting period.
Due date for instalments of tax on ring fence profits
For accounting periods ending after 30 June 2005 the due date for instalments of tax on ring fence profits will be as follows:
- First instalment - 6 months and 13 days from the start of the accounting period;
- Second instalment - 3 months from the first instalment due date; and
- Third instalment - 14 days from the end of the accounting period
Amounts to be paid on due dates
For the first accounting period ending after 30 June 2005 the amount of corporation tax and supplementary charge liability on ring fence profits to be paid on the relevant instalment dates will be:
- First instalment - one quarter of estimated liability for the period (as at present);
- Second instalment - one quarter of estimated liability for the period (as at present); and
- Third instalment - balance of estimated liability for the period.
For subsequent accounting periods the amount of corporation tax and supplementary charge liability on ring fence profits to be paid on the relevant instalment dates will be:
- First instalment - one third of estimated liability for the period;
- Second instalment - one third of estimated liability for the period; and
- Third instalment - balance of estimated liability for the period.
For accounting periods of less than 12 months the final instalment will be due 14 days from the end of the accounting period.
For further information please contact Hamilton Forrest on +44 (0)207 367 2462 or at hamilton.forrest@cmck.com or Steven Sieff on +44 (0)207 367 2847 or at steven.sieff@cmck.com
