Introduction Background Note
19.Companies that are party to North Sea licences for the production of oil and gas have a legal obligation to decommission installations and structures within those licensed areas at the end of the field’s productive life.
20.Companies have to meet fully the costs of decommissioning but do obtain tax relief for all of those costs, which they can set against their ring fence corporation tax and supplementary charge profits.
21.Relief for decommissioning costs is given through the capital allowances legislation which provides that where a person is carrying on a ring fence trade and incurs general decommissioning expenditure, a special capital allowance is available, equal to the whole amount of decommissioning expenditure that is incurred in the period in question.
22.The Government has become aware of arrangements that have been entered into which seek to establish a claim for tax relief for decommissioning costs several years in advance of any decommissioning work actually being carried out. This undermines a fundamental general principle that relief is given in the accounting period, for costs incurred in respect of the work actually carried out in that accounting period.
23.The proposed change addresses this situation by ensuring that tax relief for decommissioning costs will only be given in respect of those costs that relate to the work actually carried out in the accounting period.