OT05250 - PRT: The Nomination Scheme - Nomination excesses taxable to both CT and SC

S.493(1A)(1) ICTA 88 determines that any nomination excesses that are brought into account in determining the participator’s profits for the purposes of PRT, or would have been taken into account had its fields been subject to PRT, will be brought in as income in determining the participator’s profits for the purposes of ring-fence CT and supplementary charge.

However if that company has a non-ring trade then the amount brought into account as income for ring-fence CT will be available as a deduction against the non-ring-fence trade. (S.493(1A)(2))

The reason for charging the nomination excesses to ring-fence CT and SC is to ensure that tax-spinning is stopped in circumstances where most or all of a company’s field interests in a blend are not subject to PRT. The reason for giving a CT deduction against the outside ring- fence trade for any nomination excesses brought into account as part of the ring-fence CT profits is to ensure that CT profits in total (RF plus NRF) are assessed on the arm’s length proceeds received for the delivery recognized in the company’s accounts. Note that the nomination excess will not be included in the company’s accounts. If the company is profitable outside the ring-fence then there would have been no CT-advantage to the lower-priced contract being taxed inside the ring-fence and the higher-priced ones outside. However, if they are not profitable outside the ring-fence, then tax-spinning would have conferred a CT- advantage and therefore it is correct that the company be liable to CT on the nomination excess.