Capital Allowances Act 2001 section 416ZA

Ring fence trades: expenditure on site restoration

Section 416ZA provides for mineral extraction allowances on the cost of restoring sites used in oil and gas ring fence trades, including where the trade has already ceased.

• The net cost of restoring a site connected with a ring fence trade qualifies for mineral extraction allowances, provided the work has been carried out and the expenditure has not already been deducted in calculating trading profits.
• Where restoration takes place after the trade has ceased, the qualifying expenditure falls into a notional accounting period and is treated as incurred on the last day of trading; if the expenditure is disproportionate to the work actually completed in a period, only a proportionate amount qualifies in that period, with the excess carried forward.
• Once expenditure qualifies under this section, the gross restoration costs cannot be deducted elsewhere for tax purposes, and any amounts received that reduce the gross cost to arrive at the net cost are not treated as taxable income.
• Restoration covers landscaping, works required by planning conditions for oil extraction, compliance with approved abandonment programmes or Secretary of State requirements in UK marine areas, and equivalent obligations under foreign law — but it does not include the decommissioning of plant or machinery.