What are decommissioning costs under the Energy (Oil and Gas) Profits Levy Act 2022 section 9?

Decommissioning costs are amounts a company spends on winding down oil and gas operations that also qualify for capital allowances. They fall into two categories: decommissioning expenditure relating to plant and machinery, and site restoration expenditure covering the physical restoration of oil or gas source sites and connected land.

What types of spending count as decommissioning expenditure on plant and machinery?

Decommissioning expenditure includes spending on demolishing plant or machinery, preserving it while awaiting reuse or demolition, preparing it for reuse, or arranging for someone else to reuse it. The term plant or machinery carries the same meaning as under Part 2 of the Capital Allowances Act 2001.

Does the final outcome of plant or machinery affect whether decommissioning expenditure qualifies?

No. The actual outcome is irrelevant. If a company spends money preserving equipment while deciding whether to reuse or demolish it, the expenditure qualifies regardless of the eventual outcome. Spending on preparing plant for reuse also qualifies even if the plant is never actually reused, providing certainty during lengthy decommissioning processes.

What is site restoration expenditure under section 9 of the Energy Profits Levy?

Site restoration expenditure covers spending on restoring the physical site of an oil or gas source connected to a company's ring fence trade, or land used in connection with working that source. The meaning of restoration follows section 416ZA(7) of the Capital Allowances Act 2001, encompassing activities returning land to an acceptable condition after extraction ceases.

Energy (Oil and Gas) Profits Levy Act 2022 section 9

Meaning of "decommissioning costs"

Section 9 defines what counts as "decommissioning costs" for the purposes of the Energy Profits Levy, covering both decommissioning expenditure on plant and machinery and site restoration expenditure.

Decommissioning costs are expenditure that qualifies for capital allowances and falls into one of two categories: decommissioning expenditure or site restoration expenditure.
Decommissioning expenditure covers spending on demolishing, preserving, preparing for reuse, or arranging the reuse of plant or machinery — regardless of whether the assets are ultimately reused or demolished.
Site restoration expenditure covers spending on restoring the site of an oil or gas source connected to the ring fence trade, or land used in connection with working that source.
The definitions of "plant or machinery" and "restoration" both follow the meanings established in the Capital Allowances Act 2001.

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