A draft statutory instrument and explanatory note was published on the 28th March setting out further details of the Brown Field Allowance (BFA), described as the “Additionally Developed Oil Fields Allowance” in the Instrument.
Finance Act 2012 provided for the introduction of the BFA by statutory instrument and details of the original proposed scheme were set out in our news brief of September 2012. In substance the arrangement follows the details set out in that note but there have been a number of changes.
Firstly there is an explicit exclusion for projects which involve enhanced oil recovery using carbon dioxide from the scope of the relief.
Second, the original proposal was that a BFA could not be activated until there was production from the incremental development. This rule has been modified in the draft statutory instrument in that now the allowance cannot be activated until the beginning of the year which was notified to DECC as the year in which incremental production as a result of the project was expected to commence. In addition activation is delayed until the project has been substantially completed.
There is still some lack of clarity in the wording of the draft statutory instrument in that “substantially completed” in the above test is not defined, and there is no clear definition of what “reasonably expected capital expenditure”, which is used in determining the level of allowance available, means. It is hoped that these issues will be clarified before the final statutory instrument is issued.
In addition a statutory instrument was published on the 26th March 2013 introducing 1st April 2013 as the appointed date for various prospective amendments to the regime introduced by Finance Act 2012. The most important of these is that wording has been introduced to make it clear that a company can hold more than one field allowance in respect of any particular field. There was some uncertainty when the original field allowance rules were introduced as to how the various field allowances interacted and government expressed the view at the time that it was not possible to utilise more than one allowance for an individual field (although it was unclear whether this was supported by legislation). This amendment puts the position beyond doubt and whilst we believe it has been made specifically with the possibility that a BFA will be available for a field where some other field allowance has already been made available, it does appear to apply to any field allowances provided the appropriate conditions are met. A further prospective amendment sets out that where a company already holds another field allowance for the field, the amount of the company’s relevant income for the field is reduced by the amount of any earlier field allowance activated for the accounting period but where a company began to hold two or more field allowances at the same time, the company may determine the order in which the relevant income is to be utilised.
DECC have also issued revised guidelines in February 2013 on the application of the BFA. If companies would like to discuss this issue please contact Paul Rogerson firstname.lastname@example.org (020 7936 8309) or your normal CW Energy contact.
7th May 2013