Oil and Gas Taxation qualifying decommissioning expenditure
Published 3 March 2021
© Crown copyright 2021
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/oil-and-gas-taxation-qualifying-decommissioning-expenditure/oil-and-gas-taxation-qualifying-decommissioning-expenditure
Who is likely to be affected
Oil and gas companies that operate in the UK or on the UK Continental Shelf (UKCS).
General description of the measure
The rules determining what expenditure qualifies as “general decommissioning expenditure” for the purposes of decommissioning tax relief are being updated to ensure that all appropriate expenditure can qualify.
The amendments will clarify that certain expenditure on decommissioning incurred prior to the approval of an abandonment programme will qualify.
Policy objective
To clarify that certain expenditure incurred by oil and gas companies on decommissioning plant and machinery prior to the approval of an abandonment programme qualifies for decommissioning tax relief.
Background to the measure
HMRC has been discussing clarification of the rules around “general decommissioning expenditure” with oil and gas industry representative bodies for some time.
Although no formal consultation has been conducted informal consultation has been carried out during the discussions with industry representative bodies.
Detailed proposal
Operative date
The measure will have effect for expenditure incurred on or after 3 March 2021.
Current law
Current law is contained in section 163 Capital Allowances Act 2001.
Proposed revisions
Section 163 is amended to include expenditure incurred in anticipation of the approval of an abandonment programme. New section 163A operates to disqualify some of the expenditure if the asset on which the expenditure is incurred is not included in an approved abandonment programme, or covered by a specific agreement, within 5 years of the end of the accounting period in which the expenditure was incurred.
Summary of impacts
Exchequer impact (£m)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| Nil | Nil | Nil | Nil | Nil | Nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any economic impacts.
Impact on individuals, households and families
This measure is expected to have no impact on individuals as it only affects oil and gas companies operating in the UK and on the UKCS. There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that this measure will impact on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on oil and gas companies by clarifying that certain expenditure incurred on decommissioning plant and machinery prior to the approval of an abandonment programme qualifies for decommissioning tax relief.
One-off costs will include familiarisation with this clarification. A continuing cost may arise when some companies are required to provide HMRC with information in order for HMRC to make assessments.
Customer experience is expected to remain broadly the same as there is no change to how oil and gas companies interact with HMRC. There are expected to be no impacts on civil society organisations.
Operational impact (£m) (HMRC or other)
There are negligible operational impacts for HMRC for this change.
Other impacts
Environmental and other impacts have been considered and none has been identified.
Monitoring and evaluation
This measure will be subject to continued monitoring through regular discussions with industry representative bodies and information contained in tax returns.
Further advice
If you have any questions about this change, please contact Hugh Dorey on Telephone: 07469 023216 or email: hugh.dorey@hmrc.gov.uk.