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HMRC internal manual

Oil Taxation Manual

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Decommissioning and abandonment: general decommissioning expenditure: relief for expenditure incurred before cessation of ring fence trade and on or after 22 April 2009

CAA2001\S164

A special allowance for general decommissioning expenditure was introduced in FA2008 for certain expenditure incurred on or after 12 March 2008 where a ring fence trade is being carried on (see OT28080).

For expenditure incurred on or after 22 April 2009 the conditions for relief were amended to ensure that companies cannot obtain relief for decommissioning costs for an accounting period earlier than that in which the work is actually carried out.

Such expenditure must still qualify as general decommissioning expenditure (see OT28045) and the plant or machinery concerned must have been brought into use for the purpose of the ring fence trade, but one of the following conditions must also be satisfied.

  • the person carrying on the ring fence trade incurs general decommissioning expenditure in the chargeable period of the election (the relevant chargeable period) in respect of decommissioning carried out in that period,
  • that person incurs general decommissioning expenditure in the relevant chargeable period in respect of decommissioning carried out in a previous chargeable period,
  • that person incurred general decommissioning expenditure in a previous chargeable period in respect of decommissioning that has not been carried out until the relevant chargeable period (CAA2001\S164(1A)).

The election must be made no later than 2 years after the end of the relevant chargeable period, and must additionally specify:

  • the chargeable period in which the expenditure was incurred,
  • the decommissioning to which the expenditure relates,
  • the chargeable period in which the decommissioning was carried out.

The amount of the special allowance for the relevant chargeable period is equal to the amount of the general decommissioning expenditure to which the election relates. However if an amount of general decommissioning expenditure to which the election relates is disproportionate to the relevant decommissioning carried out in the specified decommissioning period then, for the purposes of this section, the election is to be taken to specify only the allowable expenditure (CAA2001\S164(5B)).

The application of the above rule to an amount of general decommissioning expenditure does not prevent a person from making an election under this section for a subsequent chargeable period specifying the non-allowable expenditure (CAA2001\S164(5C)).

The various terms introduced by this legislation are defined in OT28050.