OT21785 | Energy Profits Levy: Meaning of decommissioning costs  

EPLA22\S9

Decommissioning costs are any expenditure which is decommissioning or site restoration expenditure, which qualifies for a capital allowance (EPLA22\S9(2)). Such costs do not qualify as “investment expenditure” under EPLA22\S2.

Decommissioning expenditure is defined at EPLA22\S9(3), as expenditure incurred in connection with the following:

• demolishing plant or machinery,

• preserving plant or machinery pending its reuse or demolition,

• preparing plant or machinery for reuse or

• arranging for the reuse of plant or machinery.

In addition, this subsection provides that the expression plant or machinery is to be defined by reference to Part 2 of CAA01.

Qualifying payments made into decommissioning funds are treated as decommissioning expenditure falling within EPLA22\S9(3) by FA25\Sch3\Para1(1)(d) (see OT28475)

When determining whether expenditure has been incurred on preserving plant or machinery pending its reuse or demolition, it does not matter whether the plant or machinery is reused, demolished or partly reused and partly demolished (EPLA22\S9(4)).

When determining whether expenditure has been incurred on preparing plant or machinery for reuse or arranging for the reuse of plant or machinery, it does not matter whether the plant or machinery is in fact reused (EPLA22\S9(5)).

The definition of decommissioning expenditure includes any decommissioning expenditure which qualifies under any capital allowance provision, for example s164, s165, s26, s416ZA and s161C CAA01.

Example

Company X spends £10m to preserve plant or machinery after a field has ceased production. After which the plant or machinery is partly reused in a different oil field. The £10m expenditure that was incurred will still qualify as decommissioning expenditure.

EPLA22\S9(6) defines site restoration expenditure as being expenditure incurred on the restoration of the site of a source to the working of which the ring fence trade concerned relates or land used in connection with working such a source. Restoration is defined by reference to CAA01\S416ZA(7).