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HMRC internal manual

Oil Taxation Manual

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HM Revenue & Customs
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Corporation tax ring fence: first-year allowances for a ring fence trade: mineral extraction allowances

CAA2001\S416B

There is a 100% first-year allowance for expenditure on mineral exploration and access. There are no first-year allowances for the costs of acquiring a mineral asset, such as a licence.

CAA2001\S416A provides that Mineral Extraction Allowance (MEA) first-year allowances are available if the expenditure is within CAA2001\S416B. This means the trade profits must be subject to the supplementary charge (CAA2001\S416B(5)) and the expenditure must satisfy the basic conditions in CAA2001\S416B.

The expenditure has to be

  • incurred on or after 17 April 2002,
  • by a company,
  • wholly for the purposes of a ring fence trade, and
  • be outside the two exclusions in subsections (2) and (3), which deal with mineral assets and connected person transactions.

Unlike plant and machinery, it is not expected that the use of the word wholly, will give rise to difficulties.

Expenditure on the acquisition of mineral assets does not qualify for first-year allowances (CAA2001\S416B(2)). This expenditure continues to attract relief at 10%.

Expenditure on the acquisition of an asset representing MEA expenditure from a connected company does not qualify for first-year allowances (CAA2001\S416B(3)),

Any reference to the acquisition of an asset representing expenditure on mineral exploration and access includes a reference to the results obtained from the relevant expenditure. This means, for example, a company cannot claim first-year allowances on its costs of buying the seismic results of a mineral exploration activity carried on by a connected company.