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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Measuring the profits (particular trades): Mineral extraction: restoration expenditure

S335-338 Income Tax (Trade and Other Income) Act 2005, S270-S271 Corporation Tax Act 2009

Where a mining concern makes a payment to a landowner in respect of restoration for surface damage, the tax treatment is as follows:

  • No deduction is allowable for a lump sum payment in respect of possible future damage, or for payments of such a lump sum in instalments. The lump sum is capital expenditure on the acquisition of a fixed capital asset of the trade (see BIM62030). A provision for such capital expenditure is similarly not an allowable deduction.
  • Where no such right has been acquired (see BIM62030), a deduction is allowable for a payment of compensation for actually ascertained past damage to another person’s property. A provision for such expenditure is also an allowable deduction, provided it accords with generally accepted accounting practice and is accurately quantified.
  • No deduction is allowable for payments for the purchase of the surface land and unascertained past damage. Such a payment is capital expenditure on the acquisition of a fixed capital asset. However, where part of the expenditure is payment for actual past damage, and the agreement makes this clear, that element is allowable.
  • Rent in respect of any land or interest in land used in a mining operation is an allowable deduction (see BIM62035).
  • The recipient of the rent is chargeable to tax under the above legislation.