OT21770 - Energy Profits Levy: Recycling etc of assets to generate relief
EPLA22\S6
Expenditure incurred on the acquisition of an asset (including an interest in an oil field, and assets acquired in connection with the transfer of an interest in oil field) is not to count as investment expenditure if it relates to the ‘recycling’ of assets.
Expenditure is ‘recycled’ and will not qualify if:
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expenditure was incurred previously by the company or another company in acquiring, leasing, bringing into existence or enhancing the value of the asset, and
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any of that expenditure has been taken into account, or on the assumption that the levy was in force and applied at the time the expenditure was incurred, would have been taken into account, for the purposes of the levy.
The premise here is that the additional expenditure can only be generated once in respect of the same asset. Therefore, where a company acquires an asset and additional expenditure is generated in respect of the asset, it is not possible for further additional expenditure to be generated again in respect of the same asset by the original acquirer or any other party. Any future expenditure on the same asset would not be investment expenditure.
Furthermore, where expenditure is incurred on an asset and that asset would, before 26 May 2022, have been expenditure that would have qualified for the additional expenditure had the levy been in place, then expenditure on that asset is not investment expenditure.
These restrictions ensure that expenditure that benefits from the additional expenditure is new investment, rather than assets merely changing hands.
Example 1
In November 2022, Company A acquires an asset for £1 million which qualifies for the additional expenditure. In January 2024, Company A agrees to sell the asset to Company B for £800,000. As Company A took that expenditure into account for the purposes of the levy, Company B is not able to do so. The £800,000 paid by Company B would therefore not be investment expenditure.
Example 2
Company D acquired an interest in an oil field and purchased capital assets in 2010. Company C acquires that interest from Company D for £10m in January 2023. It is agreed that £8m of the expenditure relates to plant and machinery in the field, and £2m relates to the licence. Company D has therefore incurred expenditure in acquiring and bringing into existence the assets Company C acquired, and had the levy been in force in 2010 this expenditure would have been taken into account. None of Company C’s expenditure qualifies as investment expenditure.