OT28475 - Decommissioning and abandonment: relief for payment into Decommissioning Funds
If an oil and gas company transfers an asset that has been used in the ring fence trade (referred to as “relevant transferred plant or machinery”) to a Carbon Capture Usage and Storage (CCUS) Transport and Storage Company (T&SCo) it is obliged to pay the current cost of decommissioning that asset into a Decommissioning Fund (DF) under legislation enacted in Chapter 2 of Part 2 of the Energy Act 2023.
The legislation at Schedule 3 of Finance Act 2025 gives relief for payments made into DFs provided that the oil and gas company successfully claims Change of Use Relief (CoUR). CoUR is a relief administered by the Department for Energy Security and Net Zero (DESNZ) that relieves the claimant from the otherwise perpetual obligation to decommission an asset in the case of default of current or predecessor owners. One of the conditions for obtaining CoUR is that the oil and gas company makes a payment into a DF covering the current cost of decommissioning the transferred asset.
Relief is available for RFCT, SC and PRT purposes. Payments into DFs are treated as though they were decommissioning expenditure. The legislation provides that sections 164 and 165 of CAA 2001 are to be read in such a way that relief can be given for payments made into DFs either before the oil and gas trade has ceased or post cessation. Payments may be made directly into the DF by the oil and gas company or via the T&SCo. However, relief is only available to the oil and gas company, and only when CoUR has been granted and the payment has actually been made into the DF.
Companies should make a note in their corporation tax computations of any amounts that qualify for relief under Sch3\FA25.