OT21555 - Investment Allowance: Introduction
Investment allowance was introduced by Finance Act 2015, with effect for expenditure incurred on or after 1 April 2015. It is designed to encourage investment in oil and gas production activity on the UK Continenta Shelf. See also the guidance on the cluster area allowance at OT21590.
The allowance is generated when a company incurs investment expenditure in relation to a qualifying oil field. The amount of the allowance generated is 62.5% of the investment expenditure incurred. The allowance is activated when income from production is earned from the same qualifying oil field. Once activated, the allowance is used to reduce the amount of profits subject to the supplementary sharge (SC). It has no impact on a company’s liability to ring fence corporation taxs (RFCT) or petroleum revenue tax (PRT).
The allowance replaced the various field allowances which had existed previously, simplifying the regime so that the allowance is available on a consistent basis, basin wide.
Budget 2016 announced the expansion of the allowance to include tariff receipts as relevant income.
The legislation is contained in chapter 6A of Part 8 CTA 2010 and S330ZA CTA 2010 (Ordering of allowances).