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HMRC internal manual

Oil Taxation Manual

Decommissioning and abandonment: introduction

This chapter describes the reliefs available from 7 August 2000 onwards for expenditure on decommissioning plant and machinery. The reliefs available are:

For ring fence trades CAA2001\S162 to CAA2001\S165

This relief was originally restricted to expenditure connected with closing down all or part of an oil field as part of an approved abandonment programme.

Legislation in FA08 extended the availability of relief to decommissioning redundant installations and equipment whenever expenditure is incurred during the life of a field.

In oil industry usage, “Abandonment” and “Decommissioning” mean essentially the same and describe what happens to offshore installations and pipelines when the fields they serve have become fully depleted or exceeded their useful lives. “Abandonment” was never an entirely apt term as its legal meaning is the voluntary relinquishment of possession of property and the more precise “Decommissioning” is now generally used - particularly since technological developments give rise to the possibility of reusing installations.

This more precise terminology is reflected in the FA2008 changes to the legislation, which replace the term abandonment with general decommissioning expenditure (CAA2001\S163). This reflects the extension of the relief to expenditure on decommissioning equipment, even where it is not part of an abandonment programme.

For the reuse of offshore infrastructure CAA2001\S161A to CAA2001\S161D

This provides relief through the capital allowances plant and machinery pool for decommissioning expenditure (CAA01\S161B) associated with preservation of relevant plant and machinery pending its reuse, its preparation for reuse or arranging for its reuse.

RTZ Oil and Gas Limited v Elliss (61 TC 132)

This case confirmed that most abandonment or decommissioning expenditure is of a capital nature. It follows that costs may be expected to qualify for relief under the Capital Allowances code usually as Machinery or Plant.