How are capital allowances allocated between the two separate accounting periods under section 17?

Capital allowances are not time-apportioned. Instead, each capital allowance claim is allocated to whichever of the two separate accounting periods the underlying capital expenditure was actually incurred in. The normal rules under section 5 of the Capital Allowances Act 2001 determine when expenditure is treated as incurred.

How are receipts, expenses, assets and liabilities apportioned under section 17?

All items other than capital allowances — including receipts, expenses, assets and liabilities of the ring fence trade — are apportioned between the two separate accounting periods on a just and reasonable basis. This allows flexibility to reflect actual economic activity rather than requiring a simple time-based split in every case.

Does the capital allowance rule or the just and reasonable rule take priority under section 17?

The capital allowance allocation rule always takes priority over the general just and reasonable apportionment rule. This means capital allowances must first be assigned to the period in which the expenditure was incurred, and only remaining items are then divided on a just and reasonable basis between the two periods.

Energy (Oil and Gas) Profits Levy Act 2022 section 17

Q: What does section 17 of the Energy (Oil and Gas) Profits Levy Act 2022 do?

Section 17 sets out the rules for dividing a company's Energy Profits Levy profits or losses between two separate accounting periods where the original accounting period straddles either 26 May 2022 (when the levy took effect) or 31 March 2028 (when the levy is due to end). It ensures each period is taxed correctly.

Rules for apportioning profits or loss to separate accounting periods

Section 17 sets out the rules for splitting a company's Energy Profits Levy profits or losses between two separate accounting periods where the original accounting period straddles either 26 May 2022 or 31 March 2028.

Where an accounting period straddles a key date (26 May 2022 or 31 March 2028), the levy profits or losses for that period must be divided between the two resulting separate accounting periods.
Capital allowances must be allocated to whichever of the two separate accounting periods the underlying capital expenditure was actually incurred in, applying the normal rules under section 5 of the Capital Allowances Act 2001 to determine when expenditure is incurred.
All other receipts, expenses, assets and liabilities of the ring fence trade are to be split between the two separate accounting periods on a just and reasonable basis.
The capital allowance allocation rule takes priority over the general just and reasonable apportionment rule.

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member