OT26235 - Capital Allowances: Mineral Extraction Allowance

Mineral Exploration and Access

This is defined at CAA2001/s396 as "searching for or discovering and testing the mineral deposits of a source" or "winning access to any such deposits". Source of mineral deposits includes an oil well (CAA2001/s394(5)). It thus would include most capital expenditure on exploration and appraisal.

Most exploration and appraisal is also scientific research and, as such, companies are likely to make a claim for SRA. Indeed, for accounting periods ended before 27 July 1989, no MEA could be given if the expenditure was indeed on scientific research (now repealed CAA90/s148(2)). There was no choice in the matter. For accounting periods ended 27 July 1989 or later, FA89 allows companies to choose between appropriate capital allowances. In practice, this means that, as it is accepted that the cost of searching for, discovering and testing new petroleum deposits is scientific research, SRA rather than MEA is likely to be claimed as giving full up front relief. Provisions ensure that there are no double claims

The main items of qualifying expenditure on mineral exploration and access and on the acquisition of a mineral asset in the oil industry are:

1. Expenditure incurred after the end of Stage 3 of the 1967 Memorandum.
2. non scientific research expenditure prior to the end of Stage 3.
3. First development wells
4. Second hand seismic.
5. American Fields.
6. Expenditure on buying into a Field.
7. Certain pre-trading expenditure on the provision of plant and machinery (CAA2001/s402).
8. Certain other pre-trading expenditure (CAA2001/s401).
9. Acquisition of licence interests.