OT26201 - Capital Allowances: Mineral Extraction Allowance

Introduction

In 1945 a Mines, Oil Wells Allowance code (MOWA) was introduced to cover, broadly, capital expenditure on exploration and development, on mining works and on the acquisition of mineral rights in certain land overseas. In general, such expenditure was written off on an output related formula and not relieved when incurred. By the early 1980s, there was general agreement that MOWA was an unduly complex, and dated tool for giving relief. In July 1985, the Board issued a Consultative Document. The main thrust of its proposals was aimed at simplifying the code and bringing it more closely into line with the capital allowances system generally. The consequence was the MEA legislation in FA86. This replaced MOWA with effect from 1 April 1986, although there was some transitional legislation. As MOWA ceased many years ago it is not addressed in this manual.

There was a notable addition to the potential scope of mineral extraction allowances when the so called New Brunswick treatment of intangible drilling costs was abolished for expenditure incurred on or after 26 November 1996. Thereafter such costs were also relieved under the MEA code.

FA2002 introduced 100% first-year allowances for certain expenditure on mineral exploration and access for a ring fence trade within the supplementary charge. There is detailed guidance at OT21230 onwards.