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OT60085 | Transferable Tax History - Adjustments to the Net Cost Amount

From HM Revenue & Customs · Oil Taxation Manual

The net cost amount must be adjusted before it is doubled to arrive at the UDCE, which caps the amount of TTH that can be transferred.

These adjustments are there to ensure that the cap is applied consistently which reduces the scope for manipulation.

The following adjustments must be made:

  • Any adjustment for discounting should be removed.

  • Any risk factor or other assumptions about possible risk of cost increases should be removed.

  • Any adjustment for inflation should be removed, and replaced with a ‘standardised inflation adjustment’ in line with HMRC guidance at OT60090.

These adjustments ensure that all companies are working from the same basic position, which is a reasonable estimate of the costs of decommissioning. The doubling of the adjusted net cost amount to arrive at the UDCE is intended to allow for the risk that costs are uncertain and could increase. This provides a generous cap which at the same time puts companies on an even footing.