Income Tax (Trading and Other Income) Act 2005 section 225S

Relief for expenditure incurred by a participator in meeting defaulter's abandonment expenditure

Section 225S provides for tax relief to a participator in an oil licence who picks up the decommissioning costs that should have been met by another participator (the "defaulter") who has failed to pay their share.

• Where a participator in an oil licence pays abandonment costs that a defaulting participator should have paid, the contributing participator can claim tax relief on that additional expenditure
• Relief is available either as a capital allowance or as a deduction in calculating ring fence income, but only if the defaulter would have qualified for such relief had they incurred the expenditure themselves while still carrying on a ring fence trade
• Whether the contributing participator qualifies for relief is tested by assuming the defaulter did incur the expenditure and was still carrying on a ring fence trade at the time
• Subject to meeting the qualifying conditions, the relief operates as though the contributing participator had incurred the additional abandonment expenditure for the purposes of their own ring fence trade