North Sea oil and gas

The measure

The government has clarified that certain expenditure incurred in anticipation of the approval of an oil and gas abandonment programme will qualify as ‘general decommissioning expenditure’.

It is understood that general decommissioning expenditure will now include:

  • Costs of preserving infrastructure pending removal;
  • Costs of obtaining an approved abandonment programme; and
  • Decommissioning expenditure which predates the associated approval e.g. preparatory spend.

There is an exclusion where the asset on which the expenditure is incurred is not included in an approved abandonment programme, or covered by a specific agreement, within five years of the end of the accounting period in which the expenditure was incurred.


Who will be affected?

Upstream oil and gas companies incurring decommissioning expenditure in the UK.


When will the measure come into effect?

The changes take effect for expenditure incurred on or after 3 March 2021. 

Our view

Industry will welcome the explicit inclusion of early and preparatory costs within the decommissioning relief rules, which should mean that relief is available for these costs in a manner consistent with costs incurred later under an approved abandonment programme.

The five-year time limit could deny effective relief in certain cases but there is hope that, in such circumstances, specific agreement could be reached with HMRC to cover these.