OT26244 - Capital Allowances: Mineral Extraction Allowance

Pre-trading Expenditure. General

Under CAA2001/s394(1), one of the main conditions for relief is that the person incurring the expenditure carries on a "a mineral extraction trade" defined as "a trade which consists of, or includes the working of a source of mineral deposits" (CAA2001/s394(2)), and incurs the expenditure for the purposes of that trade. Relief is, therefore, not generally due to non traders. There is, however, specific legislation which enables relief to be given to traders for expenditure incurred prior to commencement of trade. Under CAA2001/s400(4), the general rule is that expenditure incurred for the purposes of the trade, before the trade is carried on, is treated as incurred on the first day of trading. Relief is available at the appropriate rate, provided that the source has not been abandoned before the date of commencement. If it has, then relief for expenditure on exploration and access or on plant or machinery may be due under the provisions of CAA2001/s401 and CAA2001/s426 as a balancing allowance. There is no similar provision for relief for expenditure on a mineral asset which has been abandoned, given up, etc.

Where an asset is acquired in foreign currency and subsequently introduced into the trade, the expenditure is to be converted at the rate applicable on the day that the expenditure was incurred.