Revenue Note for Guidance

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Revenue Note for Guidance

697S Taxable Profits for purposes of temporary solidarity contribution

Summary

This section sets out the rules for determining the taxable profits of an energy company for a chargeable period.

Details

(1) Introduces the definition of taxable profits for the purposes of the temporary solidarity contribution (“TSC”). The definition refers to an amount of total profits for an accounting period, calculated in accordance with section 76(3), of the energy company. The amount referred to is so much of those profits that are derived from relevant activities. This amount is subject to reductions under subsection (1)(a) and (1)(b).

(1)(a) In calculating the taxable profit, the amount of total profits is reduced by any charges on income paid by the company in the accounting period relating to relevant activities.

(1)(b) This subsection provides that the amount of total profits from relevant activities is reduced by the amount of capital expenditure incurred on the construction or acquisition of a tangible asset which is brought into use in the accounting period, where –

  1. the tangible asset is brought into use in any of the years 2018 to 2023, and
  2. the asset is used in the course of carrying on relevant activities,

and

in respect of which allowances are made under Part 9 or Chapter 2 of Part 24.

(2) For the purpose of subsection (1)(b), where a tangible asset ceases to be used in carrying on relevant activities at any time during a period of 5 years commencing on the date the asset was brought into use, then subsection (1)(b) shall not apply. The taxable profits shall be recalculated as if no deduction was taken for any amount of capital expenditure incurred on that asset. For the purpose of this subsection, reasonable periods of disuse are considered acceptable.

(3) Where, as a result of a deduction for an amount of capital expenditure under subsection (1)(b), the taxable profits for the accounting period are less than zero, such that there is an excess capital expenditure, the taxable profits in the next accounting period shall be reduced by an amount equal to that excess. The amount calculated can be carried forward into subsequent accounting periods, reducing taxable profits until such time as the amount is fully exhausted.

(4) In calculating the taxable profits under subsection (1), no account shall be taken of:

  1. relief under section 396(1) in respect of an accounting period ending on or before 31 December 2017, or where subsection (5)(a) applies, in respect of a deemed accounting period that ends on 31 December 2017,
  2. relief under section 396(2), 396A(3) or 397(1) in respect of an accounting period that commences on or after 1 January 2024, or where subsection (5)(b) applies, in respect of a deemed accounting period that commences on 1 January 2024,
  3. any amounts set off or surrendered under section 420 or section 420A in an accounting period that falls wholly or partly within the period 1 January 2018 to 31 December 2023, or
  4. an amount of temporary solidarity contribution incurred under the Act of 2023.

(5)(a) Restriction of losses incurred before 31 December 2017:

This subsection contains provisions relating to the apportionment of losses in respect of relevant activities where the accounting period in which that loss arose commenced before 31 December 2017 and ends on or after 1 January 2018 (referred to as the ‘original accounting period’). The period from the first day of the accounting period to 31 December 2017 is referred to as the ‘deemed accounting period’. This provision deems the loss to be allocated on a time basis in line with the length of the original accounting period in common with the deemed accounting period.

(5)(b) Restriction of losses incurred on or after 1 January 2024:

This subsection contains provisions relating to the apportionment of losses in respect of relevant activities where the accounting period in which that loss arose commenced before 31 December 2023 and ends on or after 1 January 2024 (referred to as the ‘original accounting period’). The period 1 January 2024 to the date the original accounting period ends is referred to as the ‘new accounting period’. This provision deems the loss to be allocated on a time basis in line with the length of the new accounting period in common with the original accounting period.

(6) Accounting periods falling wholly or partly within the calendar year:

For the purposes of calculating the temporary solidarity contribution, the taxable profits are calculated in respect of the calendar year. This subsection contains provisions relating to the circumstances where an accounting period falls wholly or partly within a calendar year. The taxable profits of the energy company for an accounting period are adjusted on a time basis in line with the length of the period in common to the calendar year and the accounting period compared with the length of the accounting period. The amounts apportioned under this subsection are aggregated to determine the taxable profits in respect of the calendar year.

Relevant Date: Finance Act 2024