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HMRC internal manual

Oil Taxation Manual

Field allowance: amount of field allowance for an accounting period where equity share is unchanged

The field allowance available to be deducted for an accounting period is the pool for the accounting period comprising the amount brought forward from the previous accounting period plus the amount activated for the accounting period.

A company has excess field allowances if the pool available for the accounting period exceeds the adjusted ring fence profits (which are thus reduced to nil). The balance is carried forward to the next accounting period.

In the straightforward case in which a company’s equity share is unchanged for an accounting period, the amount activated for an accounting period is the smallest of the following:

  • The relevant activation limit,
  • The company’s relevant income from the field in the accounting period, and
  • The unactivated amount of the field allowance at the start of the accounting period

The ‘relevant activation limit’ pulls together the 5 year rule and the company’s share of equity in the field during the accounting period, and is given by the formula:

T/5 x E x N/365


  • T is the total field allowance for the type of field,
  • E is the company’s equity share in the field during the accounting period, and
  • N is the number of days in the accounting period.

Where a company holds more than one field allowance for a field, to determine the amount of a company’s field allowance to be activated, the amount of the company’s relevant income from the field in the accounting period is to be reduced by the amount of any earlier field allowance activated for the accounting period. If a company began to hold two or more field allowances at the same time, the company can choose the order in which it is to be viewed for the purposes of CTA2010\S341 as having begun to hold them.

The company’s ‘relevant income’ from a field for an accounting period is the production income of the company from any oil extraction activities carried on in the field that is taken into account in calculating the company’s adjusted ring fence profits for that accounting period.

For an additionally-developed oil field, a company is only treated as having relevant income for accounting periods beginning in or after the year notified to DECC in the Field Development Plan Addendum as the year when additional reserves were first expected to be recovered from the field. In addition, a substantial amount of work needs to have been done in relation to the project. A substantial amount of work has been done in relation to the project should be taken to mean completion of all key elements (if any) identified in the FDP addendum for the project.*

**  This guidance is superseded by the introduction of the Investment Allowance legislation in Finance Act 2015. This applies to investment expenditure incurred on or after 1 April 2015.  The relevant legislation is in Part 8 Chapter 6A of CTA 2010.  Transitional rules are at paragraphs 7 and 8 of Part 2 Schedule 12 Finance Act 2015.  Full updated guidance will be provided shortly.  **