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HMRC internal manual

Oil Taxation Manual

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HM Revenue & Customs
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Capital Allowances: Research and Development Allowances: Introduction

The provisions for research and development allowances were introduced in FA2000 and apply for corporation tax to accounting periods ending on or after 1 April 2000.

The capital cost of most oil and gas exploration and appraisal activity is allowed as a deduction under CAA01\S437 as expenditure of a capital nature on research and development (R&D). The rate of Research and Development Allowances (RDA) is 100%.

Research and Development (R&D) is defined at CAA01\S437 and CAA01\S437(2)(b) it expressly includes oil and gas exploration and appraisal (E&A) as being research and development.

Prior to 1 April 2000, relief had been available to companies incurring expenditure on “scientific research” in the course of oil and gas exploration and appraisal work by way of scientific research allowances.

The guidance that follows relates specifically to the availability of Research and Development Allowances (RDA) on oil and gas exploration and appraisal activities. More detailed guidance on RDA can be found in the Capital Allowances manual at CA60100.

Detailed guidance on the Research and Development Tax Credits regime can be found in the Corporate Intangibles and Research & Development Manual at CIRD80000.

FA2004 introduced a new exploration expenditure supplement with the aim of helping companies exploring for oil and gas in the UK. This supplement was intended to maintain the economic value of RDA for expenditure on oil and gas E&A incurred on or after 1 January 2004 where those RDA could not immediately be set against income. Detailed guidance on Oil & Gas Exploration Expenditure Supplement can be found at OT26080 onwards.