Commentary

D7.924A Investment allowance

Corporate tax
Corporate tax | Commentary

D7.924A Investment allowance

Corporate tax | Commentary

D7.924A Investment allowance

The investment allowance was introduced by Finance Act 20151, with the stated intention being to move away from an allowance based on physical characteristics towards a simpler measure with wide applicability. The investment allowance essentially allows a fixed deduction from a company's adjusted ring fence profits. The allowance has been structured by reference to three key principles:

  1.  

    (a)     the allowance is calculated as a set percentage (62.5%) of 'investment expenditure' incurred by a company in relation to a qualifying oil field (ie a field that is not included in a cluster area; see D7.924B2)

  2.  

    (b)     the allowance generated in respect of a particular field is capable of being used (or 'activated') only to the extent of the revenue from the sale of oil or gas produced from that field in the relevant period; and

  3.  

    (c)     the activated allowance is given as a deduction against the supplementary charge profits of the company

A further simplification is that any unused field allowances arising under the now repealed field allowances regime (D7.923) are converted into investment allowance, enabling the repeal of the pre-existing suite of field allowances3.

Where a company is entitled to allowances under these provisions, the onshore allowance (D7.924) and the cluster allowance (D7.924B) it may chose the order in which the relieving provisions are to be applied4.

Investment expenditure

Investment expenditure is defined as capital expenditure, or expenditure prescribed as investment expenditure in regulations5. In the absence of any further definition, capital expenditure will take its ordinary

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