Finance Act, 1992

Exploration expenditure: allowances and charges.

84.—(1) Subject to subsections (5) and (16), where a person carrying on a petroleum trade has incurred any exploration expenditure (not being expenditure which has been or is to be met directly or indirectly by any other person) there shall be made to him for the chargeable period related to the expenditure an allowance equal to the amount of the expenditure.

(2) Where a person carrying on a petroleum trade has incurred any exploration expenditure in respect of which an allowance has been made to him under subsection (1) and he disposes of assets representing any amount of that expenditure, a charge (hereafter in this section referred to as a “balancing charge”) equal to the net amount or value of the consideration in money or money's worth received by him on the disposal shall be made on him for the chargeable period related to the disposal or, if the disposal occurs after the date on which the trade is permanently discontinued, for the chargeable period related to the discontinuance:

Provided that the amount on which a balancing charge is made shall not exceed the amount of the allowance made to the person under subsection (1) in respect of the amount of exploration expenditure represented by the assets so disposed of.

(3) Where any assets representing exploration expenditure are destroyed, they shall, for the purposes of subsection (2), be treated as if they had been disposed of immediately before their destruction, and any sale, insurance, salvage or compensation moneys received in respect of the assets by the person carrying on the petroleum trade shall be treated as if they were consideration received on that disposal.

(4) Where a person disposes of any assets representing exploration expenditure incurred by him in connection with an area which at the time of the disposal is, or which subsequently becomes, a relevant field (or part of such a field), the person who acquires the assets shall, if he carries on a petroleum trade which consists of or includes the working of the relevant field (or, as the case may be, the part of the relevant field), be deemed, for the purposes of this section, to have incurred—

(a) on the day on which he acquires the assets, or

(b) if later, on the day on which he commences to work the area connected with the assets as a relevant field (or, as the case may be, as part of the relevant field),

an amount of exploration expenditure equal to the lesser of—

(i) the amount of the exploration expenditure represented by the assets, and

(ii) the amount or value of the consideration given by him on the acquisition of the assets.

(5) Any exploration expenditure incurred by a person before he commences to carry on a petroleum trade shall be treated for the purposes of subsection (1) as if it had been incurred by that person on the first day on which he does carry it on:

Provided that no account shall be taken, for the purposes of this subsection, of expenditure incurred in connection with an area which is not a relevant field, or part of such a field, which is being worked in the course of carrying on the petroleum trade, if the expenditure was incurred more than 25 years prior to that first day.

(6) Where a person incurs exploration expenditure before he commences to carry on a petroleum trade and subsection (5) has effect as respects that expenditure and, before he commences to carry on that trade, he disposes of assets representing any amount of that expenditure, the allowance falling to be made to him under this section in respect of that expenditure shall be reduced by the net amount or value of any consideration in money or money's worth received by him on that disposal.

(7) For the purposes of this section, save for the purposes of subsection (4) and of subsection (5) (other than the proviso thereto), the day on which any expenditure is incurred shall be taken to be the day on which the sum in question becomes payable.

(8) Any allowance or balancing charge made to or on a person under this section shall be made to or on him in taxing his petroleum trade but, subject to subsection (4), such allowance shall not be made in respect of the same expenditure in taxing more than one such trade.

(9) Section 241 (3) of the Income Tax Act, 1967 , shall apply in relation to an allowance under this section as it applies in relation to an allowance in respect of wear and tear of machinery or plant.

(10) Section 14 (2) (a) of the Corporation Tax Act, 1976 , shall apply for the purposes of this section, and paragraph 1 of the First Schedule to that Act shall have effect for the interpretation of this section.

(11) Subsections (2) and (3) of section 297 of the Income Tax Act, 1967 , shall have effect in determining the chargeable period (being a year of assessment) for which an allowance or a balancing charge falls to be made under this section.

(12) References in Parts XIII to XVI of the Income Tax Act, 1967 , and in section 22 of the Finance Act, 1971 , to capital expenditure shall be deemed not to include references to expenditure which is exploration expenditure, and exploration expenditure shall be deemed not to be expenditure on know-how for the purposes of section 2 of the Finance Act, 1968 .

(13) Notwithstanding subsection (12), the following provisions of the Income Tax Act, 1967 , that is to say:

(a) section 299,

(b) section 303,

(c) the definition of “sale, insurance, salvage or compensation moneys” in subsection (1) of section 304, and

(d) subsections (4) and (5) of section 304,

shall, with any necessary modifications, apply for the purposes of this section as they apply for the purposes of Part XVI of that Act.

(14) Schedule 1 to the Capital Gains Tax Act, 1975 , shall have effect as if—

(a) in paragraph 2 (2), the reference to a balancing charge included a reference to a balancing charge under this section, and

(b) in paragraph 5, references to a capital allowance (or capital allowances) and to a balancing charge included references, respectively, to an allowance (or allowances) and a balancing charge under this section.

(15) Section 29 of the Finance Act, 1975 , shall have effect as if subsections (1) and (2) thereof included references to this section.

(16) For the purposes of this section, a person shall be deemed not to be carrying on a petroleum trade unless and until he is carrying on, in the course of that trade, trading activities which are petroleum extraction activities.

(17) Any reference in this section to assets representing any exploration expenditure shall be construed as including a reference to a part of or share in any such assets; and any reference therein to a disposal or acquisition of any such assets shall be construed as including a reference to a disposal or acquisition of a part of, or share in, any such assets.