OT27010 - Abandonment and Decommissioning

Ring Fence trades: Special allowance for pre-cessation Abandonment Expenditure

The FA 01 changes to CAA 90\s62A (CAA 01\s163 and CAA 01\s164) extended the existing special allowance for demolition costs to cover expenditure on the decommissioning of plant or machinery.

The special allowance may be claimed by persons carrying on a ring fence trade (ICTA 88\s502) 4 main conditions are satisfied:

1. The expenditure is on the decommissioning ( OT27011)
2. The decommissioning is of plant or machinery which is, or forms part of, offshore installations and submarine pipelines ( OT27012)
3. The expenditure is incurred for the purposes of or in connection with closing down all or part of an oil field ( OT27013)
4. The decommissioning is carried out wholly or substantially to comply with an approved abandonment programme or any condition to which the approval of the abandonment programme is subject ( OT27014).

The assets have to have been brought into use for the ring fence trade but do not still need to be in use immediately prior to their decommissioning – they may have been taken out of use some time previously or even taken elsewhere, although it would be exceptional in the latter case for the other conditions for relief to be satisfied, e.g. inclusion in an abandonment programme.

Expenditure satisfying all these conditions is defined “abandonment expenditure”.

An irrevocable election is required within 2 years of the end of the chargeable period related to the expenditure and must specify the amount of the abandonment expenditure to which it relates. If the machinery or plant is demolished, any monies received for its remains are to be deducted from the amount qualifying for relief.

Relief is given as a 100% allowance for the chargeable period related to the incurring of the qualifying expenditure. Note that if an election is not made, the expenditure may still qualify for relief under CAA 90\s62AA (CAA 01\s161C).