The tax treatment of expenditure on the opening, working and
closing of an open cast mine will depend on the precise nature of
the operations.
Before an open cast mine can be worked, the operator must win
access to the minerals. They have to remove the soil overburden,
and make a ‘first cut’ through any layers of rock to
get at the target minerals. This process of winning access to the
target minerals is capital expenditure. Tax relief for this
expenditure on opening up an open cast mine will usually be
available through mineral extraction allowances (CAA01/S395 (1)(a))
at a writing down allowance of 25% (CAA01/S418 (1)(b)).
The cost of archaeological work prior to extraction is
capital if required as a condition of granting planning permission,
and like the associated planning permission costs, will attract a
writing down allowance at 10%.
Once the minerals have been reached, the mining operation
consists of subsequent cuts to access the minerals. Waste material
is dumped in the void created by the previous cut. The costs of
these subsequent cuts and of dumping the waste material in the
successive voids so created are part of the everyday working of the
mine. These costs will normally be revenue expenditure.
When the mining operation comes to an end, the terms of the
planning permission or, alternatively, the terms of the licence
from the landowner, will normally require the mine operator to
undertake a range of work to make the land fit for future use. This
is the ‘restoration expenditure’. This type of work may
include the replacement of preserved topsoil, planting of trees,
and the reinstatement of walls and trackways. This restoration
expenditure is capital expenditure as it is required as part of the
cost of acquiring the right to work the minerals. For further
information on this point see the cases of Robert Addie and
Sons’ Collieries Ltd v CIR 8TC671 and RTZ Oil and Gas Ltd v
Elliss 61TC132 which are discussed at
BIM62060 and
BIM62065 respectively. Both of these
cases concerned payments required under the terms of licences to
restore assets following the cessation of mineral extraction
operations.
The point at which working the mine ceases and restoration
expenditure commences will depend upon the facts of the particular
case.
We will generally accept that an open cast mine continues to
be worked until the void created by the final cut is filled. This
may include filling the void with material from the original
opening up of the mine. Filling the void with material brought from
elsewhere would be part of the restoration expenditure.
Generally speaking, restoration expenditure will include any
work from the time when the loose debris filling the open cast mine
is subjected to a process of compaction (be it active or passive)
in preparation for rehabilitating the land for subsequent use. But
compacting debris during the mining process, such as by the
incidental effects of mining vehicles passing over the surface of
the debris, is part of the everyday working of the mine and is not
capital expenditure.
A mining business may also be required to maintain the land
for a period after the initial restoration has been completed. The
costs of this maintenance will normally be revenue but may be post
cessation expenditure.
The capital allowances consequences of restoration are
explained in CA50280 and CA50460.
Many mining companies make provisions for restoration
expenses. These restoration provisions may include amounts in
respect both filling in the final void, which we accept as on
revenue account, and the capital costs of compaction, top-soiling,
landscaping etc. For further guidance on provisions see
BIM46510.
Where a particular case does not follow the pattern of mining
set out above, then it will have to be looked at on its own
particular facts to establish which expenditure should be regarded
as the capital costs of either opening the mine or restoration, and
which should be revenue costs of simply working the mine.
A double claim for expenditure on restoration costs under
both the provisions of
BIM62025 and as an allowance under the
Mineral Extraction Allowances shall not be permitted.
