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HMRC internal manual

Oil Taxation Manual

Capital allowances: ring fence expenditure supplement: introduction

CTA2010\S307 - S329

FA06\S154 and FA06\Sch19 introduced a new ring fence expenditure supplement (RFES) for accounting periods beginning on or after 1 January 2006, to extend and replace Exploration Expenditure Supplement (EES). EES was available for qualifying exploration and appraisal expenditure incurred between 1 January 2004 and 31 December 2005 (see OT26080 onwards for details) The aim of RFES is to help companies involved in exploring for oil or gas, or in the development phase in the UK or on the UK Continental Shelf that do not yet have any taxable income against which to set their costs and capital allowances. RFES adds a supplement to the value of unused expenditure carried forward from one period to another, to maintain the time value of exploration, appraisal and development costs. At introduction the rate of RFES (the ‘relevant percentage’) was 6 percent per annum. The rate increased to 10% for accounting periods beginning on or after 1 January 2012.

As with its predecessor EES, a company can claim RFES on unused expenditure for a maximum of six accounting periods (see OT26120), which need not be consecutive. The main difference is that RFES applies to any expenditure relating to oil extraction activities, whereas EES was restricted to expenditure on exploration and appraisal.

There are transitional rules which bring amounts of E&A expenditure that qualified for EES within the rules for RFES.

The legislation on RFES has now been consolidated in Chapter 5, CTA2010 starting at S307.