OT21430 - Field Allowance: Amount of field allowance for an accounting period where equity share is unchanged

The field allowance available to be deducted for an accounting period is the pool for the accounting period comprising the amount brought forward from the previous accounting period plus the amount activated for the accounting period.

A company has excess field allowances if the pool available for the accounting period exceeds the adjusted ring fence profits (which are thus reduced to nil). The balance is carried forward to the next accounting period.

In the straightforward case in which a company’s equity share is unchanged for an accounting period, the amount activated for an accounting period is the smallest of the following:

• The relevant activation limit,
• The company’s relevant income from the field in the accounting period, and
• The unactivated amount of the field allowance at the start of the accounting period

The ‘relevant activation limit’ pulls together the 5 year rule and the company’s share of equity in the field during the accounting period, and is given by the formula:

T/5 x E x N/365

where

• T is the total field allowance for the type of field,
• E is the company’s equity share in the field during the accounting period, and
• N is the number of days in the accounting period.

The company’s ‘relevant income’ from a field for an accounting period is the production income of the company from any oil extraction activities carried on in the field that is taken into account in calculating the company’s adjusted ring fence profits for that accounting period.