Balancing charges in capital allowances: Taxpayer win in the UT – CATS North Sea Limited (CNSL) v HMRC [2026] UKUT 00142 (TCC)
The Upper Tribunal allowed CNSL’s appeal against the FTT decision imposing a balancing charge on an asset hive down and share sale.
The decision concerns complex issues of law, but is an important read for anyone wrestling with the effect of deeming provisions, transfers of trade, ring-fence activities, and capital allowances pooling rules.
The case concerned the hive-down of a gas transmission pipeline in the North Sea within the BP group (from Amoco (U.K.) Exploration Company, LLC (Amoco) to CNSL), followed by a sale of shares in CNSL to a third-party. A dispute arose as to the correct amount of the balancing charge which arose in CNSL.
The decision turned on the application of transfer of trade provisions in Chapter 1 of Part 22 (Part 22) of the Corporation Tax Act 2010 (CTA 2010) and the extent to which those provisions took account of ring-fencing provisions in respect of oil-related activities in Part 8 CTA 2010.
The Upper Tribunal concluded that Part 22 must be considered in light of separation of inside the ring-fence (IRF) and outside the ring-fence (ORF) activities in Part 8 CTA 2010. The Upper Tribunal held that prior to the hive-down, Amoco had two IRF part-trades in respect of its CATS activity, and following the hive-down, one of these part-trades was IRF and the other ORF in CNSL. This was by virtue of Amoco’s statutory status as a ‘deemed participator’ in the oil field, which was a status that CNSL did not have.
The parties further disagreed on the outcome of the transfer of the part which went from IRF to ORF. HMRC argued that Part 22 ought to apply on the hive-down to the transfer of both part-trades, whereas CNSL argued that it applied only to the IRF to IRF part. The Upper Tribunal agreed with CNSL, finding that the part-trade which was IRF in Amoco was a different, ORF part-trade in CNSL. There was therefore no succession of trade of this IRF to ORF part-trade and the hive-down constituted a disposal event in Amoco (a cessation of trade) under s.61(1) CAA 2001.
On the share sale, no balancing charge arose in CNSL in respect of this IRF to ORF part trade (however, there was a balancing charge in CNSL on the cessation of the IRF to IRF part-trade).
In addition, the Tribunal set out the proper operation of the capital allowances pooling provisions in this context.
Jonathan Peacock KC, Edward Hellier and Susanna Mockford acted for CNSL, instructed by Freshfields. The decision can be viewed here.
