OT66020 - Transferable tax history - TTH allocation on a loss carry back - Total activated TTH amount – first loss-making period
This guidance applies to an accounting period which is the first accounting period in which the purchaser makes a loss in its ring fence trade, after it has activated an amount of TTH (see OT64010). It also applies if the TTH activation occurs in the same loss-making period.
The first step is to identify the total activated TTH amount. That is the lower of
- The amount by which the total decommissioning expenditure amount exceeds the total net profits amount, and
- The total TTH amount.
Therefore, the total activated TTH amount held by the purchaser for the period is the amount by which the cost of decommissioning the TTH asset exceeds the profits earned from the TTH asset following the TTH transfer, unless that excess exceeds the amount of TTH that was originally transferred, in which case, the amount originally transferred is the total activated TTH amount.
Example
Company A acquired a 40% interest in field X with £10m of TTH. During A’s ownership, the field made profits of £70m, of which 40% was attributable to A’s interest. Therefore, A’s total net profits amount is £28m.
The total decommissioning expenditure amount attributable to A’s interest in field X in the first AP after Cessation of Production is £40m. The excess of the total decommissioning expenditure amount over the total net profits amount is therefore £12m (40-28). In this period, the company made a loss of £5m in its ring fence trade. This is, therefore, the first loss-making period. The total activated TTH amount for the first loss making period is the lower of the excess (£12m) and the total TTH amount (£10m). Therefore, the total activated TTH amount is £10m.