Oil Taxation Act 1975

3 Allowance of expenditure (other than expenditure on long-term assets and abortive exploration expenditure)

(1) Subject to the provisions of this section and Schedules 4, 5 and 6 to this Act, the expenditure allowable under this section for any oil field is any expenditure (whether or not of a capital nature) which, not being expenditure to which section 4 of this Act applies, is incurred by a person at or before the time when he is a participator in the field to the extent that it is incurred for one or more of the following purposes, namely—

(a) searching for oil anywhere within the area of the field as subsequently determined under Schedule 1 to this Act or not more than 5,000 metres beyond the boundary of that area;

(b) making to the Secretary of State any payment under or for the purpose of obtaining a relevant licence, not being a payment by way of royalty or other periodic payment;

(c) ascertaining (whether before or after the determination of the field under Schedule 1 to this Act) the extent or characteristics of any oil-bearing area wholly or partly included in the field, or what the reserves of oil of any such oil-bearing area are ;

(d) winning oil from the field ;

(e) measuring the quantity of oil won or to be won from the field;

(f) in the case of oil won from the field that was so won from strata in the sea bed and subsoil of either the territorial sea of the United Kingdom or a designated area, transporting it to the place where it is first landed in the United Kingdom ;

(g) the initial treatment or initial storage of oil won from the field;

(h) disposing of any oil won from the field which is disposed of crude in sales at arm's length ;

(i) closing down the field or any part of it, but only if and to the extent that the expenditure is incurred for the purposes of safety or the prevention of pollution.

(2) Subject to the following provisions of this section and Schedules 4, 5 and 6 to this Act, where any amount is under subsection (2) of section 412 of the Taxes Act (statutory redundancy payments) allowable as a deduction in computing for any accounting period the profits or losses of the relevant trade carried on by a person who was in that period a participator in an oil field, or would be so allowable under that subsection if it were not otherwise so allowable, then that amount less the amount of the rebate recoverable (within the meaning of that subsection) shall be expenditure allowable under this section for that field.

In this subsection " the relevant trade", in relation to a participator in an oil field, means the separate trade which by virtue of subsection (1) of section 13 of this Act consists of activities carried on by him that fall within paragraph (a) or (b) of that subsection or which would have so consisted if that subsection had additionally had effect as regards all past chargeable periods (within the meaning of the Taxes Acts).

(3) Expenditure is not allowable under this section for any oil field if, or to the extent that, it has been allowed under Schedule 5 or 6 to this Act for any other oil field or has been allowed under Schedule 7 to this Act in connection with any oil field.

(4) The expenditure allowable under this section for any oil field does not include—

(a) expenditure in respect of interest or any other pecuniary obligation incurred in obtaining a loan or any other form of credit; or

(b) the cost of acquiring any land or interest in land, other than the cost of making to the Secretary of State any payment falling within subsection (1)(b) above; or

(c) the cost of acquiring or erecting any building or structure on land, except—

(i) a structure to be subsequently placed on the sea bed of either the territorial sea of the United Kingdom or a designated area ; or

(ii) a building or structure used or to be used wholly in the process of winning oil from strata in or under land or of measuring the quantity of oil won or to be won from such strata ; or

(iii) a building or structure used or to be used for initial treatment or initial storage of oil; or

(d) any expenditure wholly or partly depending on or determined by reference to the quantity, value or proceeds of, or the profits from, oil won from the field ; or

(e) any payment made for the purpose of obtaining a direct or indirect interest in oil won or to be won from the field, other than a payment made to the Secretary of State ;

but nothing in paragraph (e) above shall be taken to apply to a payment made by a participator in pursuance of a contract whereby expenditure incurred for any of the purposes mentioned in subsection (1) above is to be shared between that participator and any of the other participators in the field.

(5) Expenditure allowable under this section for an oil field qualifies for supplement under section 2(9)(b)(ii) or (c)(ii) of this Act if and to the extent that it is incurred for one or more of the following purposes, namely—

(a) bringing about the commencement of the winning of oil from the field or the commencement of the transporting of oil won from it to the United Kingdom ;

(b) ascertaining (whether before or after the determination of the field under Schedule 1 to this Act) any of the matters mentioned in subsection (1)(c) above;

(c) carrying out works for, or acquiring an asset or an interest in an asset to be used for the purpose of, substantially improving the rate at which oil can be won or transported to the United Kingdom from the field, or preventing or substantially reducing a decline in that rate ; or

(d) providing any installation for the initial treatment or initial storage of oil won from the field ;

but expenditure incurred in hiring an asset shall not so qualify unless the asset is used in carrying out works for a purpose mentioned in paragraph (a), (b) or (c) above or works for the provision of any such installation as is mentioned in paragraph (d) above.

(6) For the purposes of subsections (1) and (5) above expenditure incurred partly for one or more of the purposes there mentioned and partly not shall be apportioned in such manner as is just and reasonable.