There is a special tax allowance available on the cost of decommissioning plant or machinery.
However, you can only claim it for work that has been carried out, not for decommissioning that is planned to take place in the future, even if payment has already been made.
That was the ruling of the First Tier Tax Tribunal in a case involving Marathon Oil UK.
In December 2008, the company paid $300 million to a subsidiary for the decommissioning of installations in the North Sea.
Between December 2008 and the end of 2016, slightly less than $50 million of actual decommissioning costs were incurred.
The main decommissioning programme was not forecast to take place until 2018 to 2024. In December 2009, Marathon filed its company tax return and claimed the allowance on $300 million which had been paid to the subsidiary.
HMRC rejected that claim on the basis that most of the work had not yet been carried out and the full expense had not been incurred.
The company appealed but the tribunal upheld the decision. It said that viewing the facts realistically, Marathon’s real purpose in paying the $300 million on the date that it did was to accelerate the special allowance, not to meet decommissioning expenditure.
Please contact us if you would like more information about accountancy and your business.