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Example 2: Partial Disallowance of Expenditure (using PRT rate of 50% for illustrative purposes)

The facts are the same as in Example 1 at OT17760 except that now the 1H01 gross profit is 拢100m.

The 1H01 assessment is as follows (again ignoring provisional allowance and oil allowance):

Gross Profit: 拢100m

Safeguard: 拢84m *

PRT: 拢8

*PRT is restricted to 80% of the difference between 拢100m (the adjusted profit) and 15% of 拢600m.

If the 拢20m deferred claim had been allowed before the making of the 1H01 assessment, the assessment would have shown:

Gross Profit: 拢100m

Operating Expenditure: 拢20m

Safeguard: 拢80m *

PRT: 拢0

*15% of 拢600m is greater than 拢80m (the adjusted profit) so no PRT is due.

Assuming the operating expenditure is otherwise allowable, and is tax-effective at 50% in the 2H01 assessment, 拢16m should be allowed and 拢4m disallowed. This ensures that the participator pays no more tax than it would have done had the claim not been deferred. The 1H01 assessment is not amended. Rather, the 拢16m is included in the 2H01 assessment in the normal way following OTA75\S2(9), provided the decision is made before that assessment is issued.