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HMRC internal manual

Oil Taxation Manual

Corporation tax ring fence: onshore allowance - the background and underlying policy

Section 70 and Schedule 15 of Finance Act 2014 introduced the onshore allowance in Chapter 8, Part 8, CTA 2010. The legislation is to provide support for the early development of onshore oil and gas projects which are economic but not commercially viable at the 62 per cent tax rate. The new onshore allowance covers both conventional and unconventional hydrocarbons and replaces all existing field allowances for onshore projects.

The allowance removes an amount equal to 75 per cent of capital expenditure incurred by a company in relation to an onshore site from its adjusted ring fence profits which are subject to the supplementary charge, subject to certain capacity limits (for production yield).

The allowance works in a similar way to the additionally developed oil field allowance but the onshore allowance is generated by the actual capital expenditure and is immediately activated by production income. This means that there is no spreading of the allowance over a five year period in contrast to the other existing field allowances.