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HMRC internal manual

Oil Taxation Manual

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

The legislation introduces the concept of ‘reference period’. A reference period continues while the company’s equity share in the field remains unchanged and an amount of the company’s field allowance is activated in respect of each reference period.

The amount activated for the reference period follows the model of the straightforward case of an unchanged equity share. The activated amount is the smallest of:

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

The ‘relevant activation limit’ also follows the straightforward model, and is given by the formula:

T/5 x E x R/365

where

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

The company’s relevant income from the field in the reference period needs to be calculated, and is given by the formula:

I x R/L

where

  • I is the company’s relevant income from the field in the whole accounting period,
  • R is the number of days in the reference period, and
  • L is the number of days in the accounting period for which the company is a licensee in the new oil field.

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 reference period is to be reduced by the amount of any earlier field allowance activated for the reference 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.

**  This guidance is superseded by the introduction of the Investment Allowance legislation in Finance Act 2015.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.  **