Income Tax (Trading and Other Income) Act 2005 section 225V

Receipts arising from decommissioning

Section 225V deals with the income tax treatment of amounts received by a person carrying on a ring fence trade who steps in to cover another party's defaulted decommissioning obligations, where the total recoveries and reliefs exceed the contribution made.

• Where a person in a ring fence trade (the defaulter) fails to pay decommissioning expenditure and another person in a ring fence trade (the contributing person) covers all or part of that default, a taxable receipt may arise if the contributing person's recoveries and tax reliefs exceed their contribution
• The excess — called the relevant difference — is calculated by comparing the contribution against the total of any abandonment guarantee payments received, any reimbursements from the defaulter, and any tax relief obtained on the contribution
• This relevant difference is treated as an income receipt of the contributing person's ring fence trade for the tax year in which the Secretary of State certifies satisfactory completion of the abandonment programme, or if the trade has permanently ceased before that date, the last tax year of trading
• Any additional income tax assessment needed to reflect this receipt may be raised up to four years after the end of the tax year in which the certification date falls