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HMRC internal manual

Oil Taxation Manual

Capital Allowances: Plant and Machinery - Pre-trading Expenditure


Much pre-trading expenditure in the oil industry will be relieved through Research and Development Allowances (RDA) which includes oil and gas exploration and appraisal, see OT26000 for details.

  1. There will be instances where capital expenditure does not fall within the definition of research and development. CAA01\S161 covers cases where expenditure is incurred on the provision of machinery or plant for the purposes of mineral exploration and access before the day on which that person begins to carry on a trade of mineral extraction, and
  2. on the day of commencement of that trade, the machinery or plant belongs to him.

In these circumstances, the person is treated as having incurred the expenditure on the day of commencement of trading and allowances will be due on the actual cost. Where exceptionally there has been a sale and re-acquisition of the plant before trading commences, the cost on re-acquisition is used.

The section does not operate where, before the mineral extraction trade is commenced, the machinery or plant is sold, demolished, destroyed or abandoned - see CAA01\S161(5). However, in such cases Mineral Extraction Allowances (MEA) may be due.