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:
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.
Upstream oil and gas companies incurring decommissioning expenditure in the UK.
The changes take effect for expenditure incurred on or after 3 March 2021.
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.