Cats North Sea Limited v The Commissioners for HMRC

For the purposes of intra-group trade transfers, statutory ring-fencing of oil-related activities must be taken into account when identifying the trade transferred. The activities transferred must be matched and must constitute the same trade in the predecessor and successor. Physical identity of activities is insufficient where the statutory status of the companies gives those activities different ring-fence characters.

Where plant or machinery is used for two separate qualifying activities, qualifying expenditure must be apportioned between the relevant pools under the separate-pooling rules. The single-asset-pool provisions for use partly for “other purposes” concern qualifying and non-qualifying use, not dual use for two qualifying activities. Disposal values and historic cost must be apportioned consistently.

Cats North Sea Limited acquired the CATS Pipeline from its parent company, Amoco, in an intra-group hive-down and was later sold outside the group. Amoco had been treated as carrying on a wholly inside-ring-fence trade because of its deemed participator status. CNSL, which lacked that status, carried on inside-ring-fence and outside-ring-fence activities.

The First-tier Tribunal held that Part 22 of the Corporation Tax Act 2010 applied to the hive-down and accepted HMRC’s approach to pooling, producing a substantial balancing charge. CNSL appealed on the interpretation of the ring-fencing and trade-transfer provisions, and on the correct pooling method.

1. Appeal allowed. The FTT’s decision was set aside and remade.
2. The statutory fiction in section 279 of the Corporation Tax Act 2010 is not confined to identifying profits to which a different rate applies. It forms part of a wider code governing the recognition, computation and charging of oil-related activities. Section 162 of the Capital Allowances Act 2001 gives that separation effect within the capital-allowances regime.
3. Section 951(3) CTA 2010 requires a three-stage analysis: identify the activities transferred; determine whether they are capable of constituting a separate trade; and ask whether, had they been carried on as a separate trade by the transferor, there would have been a transfer of the same trade. The activity-based approach in Falmer Jeans Ltd v Rodin [1990] STC 270 (Ch) does not remove the requirement that the same trade be transferred.
4. On the correct analysis, the BP-hydrocarbon transportation activities constituted an inside-ring-fence part-trade transferred from Amoco to CNSL. Part 22 therefore applied to that part, and section 948 prevented a balancing charge on the hive-down. The non-BP transportation activities were inside-ring-fence in Amoco’s hands but outside-ring-fence in CNSL’s hands. No transfer of the same trade occurred for that part, so Part 22 did not apply.
5. For capital allowances, sections 11(3) and 53(2) of the Capital Allowances Act 2001 require separate calculation and prohibit expenditure relating to different qualifying activities from being placed in the same pool. Expenditure used for two qualifying activities must therefore be apportioned at the outset. Sections 206 and 207 address qualifying and non-qualifying use and do not provide an alternative mechanism for dual qualifying activities.
6. Disposal value and historic cost must follow the same allocation between pools. The FTT’s obiter preference for HMRC’s duplicated-pool approach was therefore rejected. The Upper Tribunal did not determine the disputed section 207 “just and reasonable” calculation because it was unnecessary.

• Upper Tribunal (Tax and Chancery Chamber) [2026] UKUT 142 (TCC): appeal allowed; the FTT decision was set aside and remade.
• First-tier Tribunal [2024] UKFTT 00512: held that Part 22 CTA 2010 applied and accepted HMRC’s pooling method.