CW Energy LLP

Accounting for Field Allowance

Many companies will have recently finalised their accounts for 2012.

The treatment for tax provision purposes of the various field allowances which are now available has caused a lot of discussion this year. The alternative treatments that we have seen have ranged from recognising the full potential benefit of the allowance as soon as it looks like it was going to be available, to arguing that recognition should follow the activation of the allowance in accordance with the statutory scheme.

What seems clear is that there is no prescriptive treatment set out in the relevant accounting standards for either UK GAAP or IFRS, and that first principles need to be applied.  CW Energy’s role in connection with this issue has been to support our clients in presenting an appropriate treatment in their accounts and to help explain that view to their auditors. We have seen a whole range of treatments accepted by different audit firms, and indeed different treatments accepted by the same audit firm for different companies.  This is perhaps not surprising as an appropriate treatment will have to reflect the facts and circumstances of the company, including their future profit and investment expectations.

With the doubling of small field allowances in 2012 and the introduction of a brown field allowance the amounts involved can be fairly significant and the level of field allowance could be material in determining the tax provision for a company. It is therefore important that companies carefully consider what options are available to them.  For companies who have already taken a view it will be important to review their position at the next reporting event.

If companies would like to discuss this issue please contact Paul Rogerson (0207 936 8309) or your normal CW Energy contact.

25th April 2013