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HMRC internal manual

Oil Taxation Manual

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HM Revenue & Customs
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Capital allowances: ring fence expenditure supplement: qualifying pre-commencement expenditure

CTA2010\S312

Expenditure is qualifying pre-commencement expenditure if the following conditions are satisfied.

Condition A: it is incurred on or after 1 January 2006.

Condition B: it is incurred in the course of oil extraction activities.

Condition C: it is incurred by a person with a view to carrying on a ring fence trade but before they set up and commence the trade.

Condition D: it is

  1. subsequently allowable as a deduction in calculating the profits of the ring fence trade for the commencement period (for the definition, see OT26115), or
  2. relevant R&D expenditure incurred by an SME.

‘Relevant R&D incurred by an SME’ is defined as expenditure for which the company has made an election under CTA09\S1045 to treat pre-trading R&D expenditure as a trading loss but has not claimed R&D tax credits in relation to that expenditure. For RFES purposes, the amount that is included as pre-commencement expenditure is 150 percent of the actual amount.

Where a large company has incurred pre-trading R&D expenditure, it qualifies as pre-commencement expenditure if it would qualify for a 25 percent uplift under CTA09\S1074 (deduction for R&D expenditure in computing the profits of a trade). In the legislation, this is referred to as ‘relevant R&D incurred by a large company’. For RFES purposes, the amount that is included as pre-commencement expenditure is 125 percent of the actual amount.