Oil Taxation Act 1983 section Schedule 1 paragraph 8

Reduction of allowable expenditure when a new asset ceases to be used for a qualifying purpose

Schedule 1 paragraph 8 deals with how allowable expenditure on a replacement asset is reduced if the asset ceases to be used for a qualifying purpose in the UK oil industry, and the circumstances in which previously claimed expenditure is clawed back as deemed disposal receipts.

• If a replacement asset stops being used for a qualifying purpose and is then used for non-qualifying purposes (without being disposed of), the allowable expenditure is reduced by a fraction based on the qualifying use period divided by the asset's total useful life.
• A qualifying purpose means use in connection with a taxable oil field, or other use within the UK, its territorial sea, or a designated area — but excludes use wholly or partly for an ineligible oil purpose such as a non-taxable field or certain ring-fence oil-related trading activities.
• If the reduced allowable expenditure is less than the amount already claimed, the excess is treated as a disposal receipt chargeable in the period the asset ceased qualifying use — and where the asset has been used in multiple fields, the disposal receipt is attributed to the field with the latest connection.
• If the replacement asset never enters qualifying use at all and is no longer expected to do so, the allowable expenditure is reduced to nil, and any amount previously claimed is treated as a disposal receipt in the period when qualifying use ceased to be expected.