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HMRC internal manual

Oil Taxation Manual

Capital Allowances: Research and Development Allowances: 1967 Memorandum - Details

Expenditure on Exploration for and Development of Oil and Natural Gas Resources


This memorandum, which has been agreed between the Board of Inland Revenue and representatives of the Oil Industry, deals with certain special questions of tax law which arise in connection with petroleum exploration. It must, however, be stressed that the final determination of tax liabilities under Schedule D is the responsibility of the appropriate body of Commissioners, subject to the right of appeal to the Court (see OT26013).

In this memorandum and its Appendix the expressions “petroleum” and “oil” are used to cover all naturally occurring hydrocarbons including natural gas, and the expressions “petroleum exploration” and “petroliferous trade” are used in a similar sense.

Scientific Research Allowances

  1. The cost of searching for, discovering and testing new petroleum deposits is generally regarded as expenditure on scientific research qualifying for relief under Part XI ITA52. In any particular field these allowances will be available to an operator in respect of expenditure in that field up to the end of Stage III of the Appendix to this memorandum describing the sequence of petroleum exploration activities. Once it is established that two or more concessionaires are operating in the same field in which the existence of petroleum in commercial quantities has been proved by any one of them scientific research allowances will terminate for each operator as regards that field from the date when it is so established for each such operator.
  2. Scientific Research Allowances are granted to a trader under Section 335 ITA52 and 336 ITA52 only on research related to his trade which by virtue of Section 340 ITA52 includes research which may lead to, or facilitate, an extension of that trade. A trade is normally regarded as related to petroleum exploration in this sense if it includes some aspect of the oil trade, or mining. A trader who does not carry on such a related trade at the time the expenditure is incurred but who thereafter sets up and commences a petroliferous trade would be entitled to relief under Section 336 ITA52. The date on which trading commences is one for determination by reference to the facts of the particular case