D7.925 General decommissioning expenditure

Corporate tax
Corporate tax | Commentary

D7.925 General decommissioning expenditure

Corporate tax | Commentary

Decommissioning expenditure

D7.925 General decommissioning expenditure

For the latest New Developments, see ND.1435, ND.1908.

Specific rules give more effective tax relief for expenditure incurred in decommissioning offshore oil fields. Broadly, these rules permit relief at 100% for the following expenditure1:


    (a)     the net demolition cost of plant and machinery (that is, after deducting any receipts from the sale of scrap etc); and


    (b)     other decommissioning costs, such as costs incurred on preparation for reuse and also the costs of removing and mothballing oil installations where their eventual fate has not been decided. HMRC have confirmed that this includes the costs of statutory consultations and feasibility studies and expenditure on removal whether in connection with demolition or reuse or where the eventual fate of the installation is still unknown at the time of the removal2.

Without those provisions, these costs would be treated as expenditure qualifying for writing down allowances and balancing allowances and as the trade may by then have become unprofitable, it may have been impossible to obtain effective relief for such expenditure.

In the case of Dunlin3 the High Court held that interest was due on repayments of liabilities to petroleum revenue tax (PRT) both where the liability had been met by cash payments and by crediting advance PRT (APRT).

General restriction on allowances

There is however a restriction on the allowances available if (for expenditure incurred on or after 17 July 2013) a connected person provides, directly or indirectly, a decommissioning service to a person who is carrying on or

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